By Dalila Abu Bakar
Economists expect the Malaysian economy to improve its performance this year, to be supported by a stronger performance from the export sector and sustained growth domestic momentum.
“We expect a stronger performance from the export sector this year given the stronger growth from the developed economies including the United States (US) and the higher export growth for Malaysia this year. Together with the sustained growth momentum, Malaysia will achieve the projected 5%-5.5% gross domestic product (GDP) growth for 2014,” says RAM Holdings group chief economist Dr. Yeah Kim Leng.
The Malaysian economy expanded by 4.7% (see illustration) for 2013 while growth for the fourth quarter was 5.1%, supported by private sector demand and improvement in exports.
“On the supply side, the major economic sectors grew further, supported by both domestic and trade activities,” says Bank Negara Malaysia in its fourth quarter GDP release.
Yeah expects the domestic growth momentum to be sustained throughout the year due to the overall expansion recorded by all sectors. “The overall expansion in all sectors suggest that domestic growth momentum can be sustained throughout 2014, although it will be slightly moderated by tighter credit conditions and higher inflationary expectations,” Yeah tells Malaysian Business.
Meanwhile, MIDF Research maintains its forecast of 5% growth for 2014. “We expect the external demand boost Malaysia’s GDP on the back of strengthening recovery in the developed markets, mainly the US, may be rather modest as compared to the historical upward trends of the electrical and electronic (E&E) cycles as exports to the US is now being dwarfed by the share that is going to China, our largest export market now. At the same time, domestic demand growth is likely to be constrained by the high level of debt for all sectors – household, businesses as well as the government, which implies some deleveraging at a faster pace may take place and at the expense of growth and the likely continued upward pressure on domestic cost,” the research house says.
Meanwhile, Bank Negara says domestic demand will remain supportive of growth.
“While domestic demand is expected to moderate following the ongoing fiscal consolidation, the external sector is expected to benefit from the improving global conditions. The growth momentum is expected to remain on a steady trajectory,” Bank Negara states.
In its press release, the central bank says that private consumption growth remained high in the fourth quarter, although the pace of expansion moderated (7.3%; 3Q 2013:8.2%). Household spending continued to be supported by stable employment conditions and sustained wage growth, especially in the domestic-oriented sectors. Growth in public consumption moderated to 5.1% (3Q 2013: 7.8%), reflecting lower Government spending on emoluments. The services sector grew in tandem with the improvement in trade and manufacturing malaysian business activities. The manufacturing sector expanded further, supported by higher growth in both export and domestic-oriented industries. The construction sector growth remained firm, underpinned by the activity in the non-residential and residential subsectors. However, the commodities sector weakened, due to lower production of rubber, palm oil and crude oil.
Yeah adds that the overall growth of the Malaysian economy is commendable as the domestic economy is still facing the strong headwinds. “The 4.7% growth is commendable although it is marginally lower than my expectations. This is because the fourth quarter saw negative contributions from net exports. The higher imports than exports for the fourth quarter pulled down the GDP growth for the fourth quarter,” Yeah notes.
Meanwhile, MIDF Reseach says the Malaysian economy grew slightly faster in the fourth quarter of 2013 on the back of continued pick up in the manufacturing sector and faster expansion in the services sector that helped to offset the slowdown in domestic demand. “Net exports, however, continued to be a drag on growth,” says MIDF Reseach in its notes.
According to the research house, the sharp deceleration in domestic demand attributed to the 4.7% GDP growth for 2013 (2012: 5.6%).
Total trade to grow 5%-6%
Meanwhile, International Trade and Industry Minister Datuk Seri Mustapa Mohamed expects Malaysia’s total trade to grow by 5%-6% this year, boosted by exports which he foresees to rise by 3%-4% for 2014. Imports is projected to grow by 8%.
Last year, Malaysia’s total trade stood at RM1.369 trillion, an increase of 4.6% from RM1.309 trillion registered for 2012. “We did a bit better than what we expected. We hope our trade will go up this year,” Mustapa says when announcing Malaysia’s trade performance for 2013 recently.
For this year, Mustapa sees exports growth to be supported among others, by the E&E and oil and gas (O&G) sectors. “We saw a recovery cycle in the E&E sector during the second half of last year and I believe it will be sustained. The sector has gone through a challenging period in one or two years ago,” Mustapa says. The E&E sector recorded growth of 2.4% in exports to RM236.76 billion for last year, accounting for 32.9% of total exports. The growth was driven by higher demand among others for electronic integrated circuits, parts for electronic integrated circuits and computers and data processing equipment.
According to MIDF Research, the sharp turnaround in the exports of the E&E in the second half of 2013 helped it to record a slight turnaround of 2.4% during the year (2012: -2.5%). “We remain confident of continuous recovery for E&E but we are a bit wary of the volatility nature of some natural resource-based items namely petroleum products which mainly being exported to China. We were hoping for a further uptrend in imports of intermediate goods as an indication of a sustained pick up in the exports of E&E, as exports of natural resources based is rather volatile and likely to slow down as China’s growth engine is expected to switch to lower mode this year,” says MIDF Reseach in its notes.
Export markets with significant increase for the E&E products were Singapore, the Netherlands, Hong Kong, Thailand, Germany and Vietnam. The early signs of economic recovery in the European Union (EU) and greater manufacturing activities in Asean saw increased exports of E&E products to these markets.
According to Mustapa, the O&G sector is another area that will boost exports for this year. Last year, refined petroleum products was the main exports in the O&G sector, rising 26.9% to RM65.4 billion, partially attributed to growing trading activities. Meanwhile, LNG ranked as the second largest exports rose 5.5% to RM59.2 billion.
Exports recorded a strong growth of 14.4% in December 2013, marking the sixth consecutive month of export growth since July 2013. On the average, exports expanded by 8.9% in the second half of 2013, compensating for a lackluster first half performance.
However, for the full year of 2013, exports grew by 2.4% year-on-year to RM719.81billion while imports saw a growth of 7% or RM17.17 billion to RM649.19 billion, with total trade rising 4.6% to RM1.37 trillion.
Asean leads the growth
According to Mustapa, exports to Asean markets led the growth. Asean’s share of Malaysia’s total exports expanded to 28% from 26.8% in 2012. “Exports to Asean increased by RM13.62 billion to RM201.81 billion for 2013,” he says.
The increase in exports to Asean was contributed mainly by higher exports of refined petroleum products, electronic integrated circuits and parts, machinery, appliances and parts including pumps, compressors, fans, centrifuges and parts, as well as manufactures of metal of alloyed aluminium plates, sheets or strips.
Mustapa adds that Asean was also the main driver of trade growth last year. More inter-company linkages, cross-border investments, outsourcing activities and growing trading activities within the region had resulted in a higher total trade with Asean to RM374.71 billion, accounting for 27.4% of Malaysia’s trade in 2013. Imports from Asean increased by 2.1% to RM172.9 billion.
Moving forward, Mustapa sees stronger trade prospects with the Asean countries especially with the implementation of the ASEAN Economic Community in 2015.
On the other hand, China remains Malaysia’s largest trading partner for the fifth consecutive year since 2009 with trade expanded by 12.5% to RM203.23 billion. Exports to China increased by 9.2% to RM96.97 billion contributed by higher exports of manufactured goods by 9.5% or RM6.16 billion and mining goods by 37.3% or RM3.22 billion. Exports of E&E products, valued at RM40.22 billion accounted for 41.5% of total exports to China.
Meanwhile, exports to the EU increased by 5% to RM65.29 billion as economic activities began to pick up in several countries in the region. The markets, which recorded higher exports of over RM100 million, were the Netherlands, Germany, Austria, Italy, Slovenia, Belgium and Poland. The main driver of the increased exports to the EU was the E&E products, primarily electronic integrated circuits as well as parts and accessories for computers.
Highest ever FDI recorded
Meanwhile, Ministry of International Trade and Industry (MITI) says that Malaysia has recorded its highest lever Foreign Direct Investment (FDI) totalling RM38,774 million for 2013. The amount has surpassed the high level of FDI amounting RM37,325 million registered in 2011. The 2013 FDI is 24% higher compared to RM31,116 million a year ago despite the slow recovery and still uncertain global economic conditions. All sectors of the economy registered increases in FDI inflows in year 2013. Investments were mainly in the manufacturing (37.6%) and services (28.8%) as well as mining (28.7%) sub-sectors.
This article first appeared in Malaysian Business.