News Room - Business/Economics

Posted on 29 May 2008

Malaysia’s Q1 GDP grows 7.1%, improvement driven by expansion in consumption spending

Malaysia’s gross domestic product (GDP) grew 7.1% for the first quarter compared with 5.1% in the same quarter a year ago, driven by double-digit expansion in private and public consumption spending. This was further supported by strong external demand, strong export growth and moderating imports. 

However, quarter-on-quarter, GDP was down from 7.3% previously.

The services sector grew 8%, manufacturing 6.9%, agriculture 6.3%, construction 5.3% and mining 3.7%. Net foreign direct investment (FDI) amounted to RM1.7bil, with about half of the inflows directed to the services sector followed by the oil and gas, and manufacturing sectors.

M3, or broad money, expanded by RM51.6bil, or at an annual rate of 12.1% at the end of the quarter, reflecting net inflows stemming from trade, FDI and portfolio investments as well as increased lending to the private sector and expansionary government operations.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz told a media briefing yesterday that despite global economic uncertainties, the strong growth in the quarter was led by domestic demand and reinforced by exports, especially of commodities such as crude oil and crude palm oil.

“A large part of domestic demand came from private and public consumption as well as investment activities while higher commodity prices, higher civil service incomes, increased access to borrowing for households and businesses, funds raised in the private debt securities market, and higher tourist arrivals led to increased spending,” she said.

Zeti said there was currently no necessity for stimulus packages to spur the economy although the risks of slower growth existed due to uncertainties in the global economy and international financial markets.

“Growth in the second half would be supported by the underlying strengths of the Malaysian economy,” she added.

These underlying strengths included domestic demand, a diversified economy, strong commodity prices and new export markets.

“We’re strengthening our ties with non-traditional markets such as West Asia and Australia,” Zeti said, adding that credit conditions remained favourable with ample liquidity and low interest rates while the banking system had the capacity to lend since non-performing loans (NPLs) were lower. Total net NPLs declined 5.2% to RM19bil.

Zeti said no forecast on inflation would be made until the government announced adjustments to the subsidy regime. “We’ll not be announcing our forecast until we’ve assessed the impact after the government’s announcement,” she said.

Headline inflation increased to 2.6% from 2.2% in the previous quarter, due mainly to higher prices of food and non-alcoholic beverages in the restaurant and hotels as well as in the miscellaneous goods and services categories.

Zeti said the monetary policy remained consistent with the outlook on inflation. “In the medium term, slower economic growth will have a moderating effect on inflation,” she added.