Posted on 19 May 2010
Strong economic growth is expected to continue into the other quarters of the year as external demand for the country's electrical and electronics goods, which was credited as among the main drivers of growth in the first quarter, is seen to be robust.
Bank Negara does not see the debt crisis in Europe denting growth as it is projected to have limited impact on
“We knew quite early on that this quarter's performance was going to be better than previously expected because of the indicators that we saw,'' said Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.
Such indicators were the big increase in external trade given the surge in exports. Apart from the impact external trade had on growth, Zeti said domestic demand too propelled growth as consumption indicators and loans growth gave an hint that growth was going to be stronger than originally projected.
Zeti said the next few quarters would show an improvement in growth but may not post such a huge year-on-year increase of 10.1% seen in the first quarter.
“What is more important are actual economic activity increases and we are projecting that growth quarter-on-quarter will improve,'' she said.
Zeti said one of the main reasons growth was much stronger than what economists were projecting was robust demand for electrical and electronics goods.
“There was strong demand from both Asia and the
“If you talk to those in the electronics industry, they project this will continue throughout this year.”
CIMB Investment Bank chief economist Lee Heng Guie is looking at growth for the full year to come in at 7% compared with the previous estimate of 6.5% due to the stronger than expected growth in the first quarter.
“But we see growth moderating somewhat in the second half. The double-digit expansion in the economy for the first quarter would not be repeated unless we see exceptionally strong exports growth,'' he said.
“Growth in the second half would largely depend on the global outlook, which is still uncertain as we ultimately need to see strong growth from the G3 economies (United States, Japan, EU), which at this point is uncertain due to the Greek debt crisis.''
Maybank Investment Bank chief economist Suhaimi Ilias said the 10.1% year-on-year growth announced was in line with the bank's expected 10% year-on-year surge in economic expansion after the 4.5% year-on-year rebound in the fourth quarter of 2009.
He said the magnitude of growth was somewhat “flattering” given the sharply lower base in first quarter of 2009 when the economy contracted by 6.2% on a year-on-year basis.
“But what made the recovery impressive is the speed, breadth and strength of the rebound since late last year, indicating the effectiveness of the huge external and domestic monetary and fiscal stimuli to stabilise the economy, financial markets and the banking system, restore consumers, businesses and investors confidence, and stimulate external trade and domestic economic activities,'' he said.
“However, we expect quarterly growth in the next three quarters of this year to moderate as the low-base effect disappears.”
He said the expected moderation of growth rate was supported by the latest trends in the index of leading economic indicators which have showed slowing growth in the months of December 2009 and in January and February this year, signalling the prospect of easing real GDP growth rates starting from the second or third quarter.
“Nonetheless, full-year growth can be expected to be strong and above our current forecast of 5.3% and the official target of 4.5%-5.5%,'' he said.
AmResearch Sdn Bhd senior economist Manokaran Mottain expects growth to be equally strong in second quarter but not at first-quarter levels.
“It would be more like 8% and we maintain our full-year growth at 8%,'' he said.
He does not think there is much risk from the Greek debt crisis at the moment as
“We see more risk from a property bubble in China although the risk of an overheating economy is not there yet as China's first quarter's growth of 11.9% was still very close to average growth in the past few years,'' he said.
Zeti said it was important to see private investment, captured under the classification of gross fixed capital formation, had risen by 5.4% during the first quarter.
“It's important as we know at some point that fiscal stimulus around the world will unwind and diminish. It is therefore important for the provate sector to step in and maintain the growth momentum,'' she said.
Lee, who was concerned about total investment, suspects that the growth in total investments by 5.4% was largely due to Government spending and as a revival of private sector investments was yet to be seen.
“The country needs to see more investment from the private sector as most of the effects from the stimulus measures would wear off in the second half of the year. Therefore, the question remains on whether the private sector can pick up when these effects wear off,'' he said.
The strong first quarter growth number will see expectations from economists for the full year being tweaked upwards but Zeti said that while there will be a revision, that will only be announced when the budget is announced later in the year.
