Posted on 19 Aug 2010
Although the economy expanded by 8.9% in the second quarter (Q2) ended June 30 from a year ago, which then produced a first-half (H1) growth of 9.5%, going forward the pace of expansion is likely to slow.
The economy’s leading indicators have been growing at a slower pace with the industrial production index showing a downward trend since May on a year-on-year basis while exports have fallen over a similar period.
“Growth in the second half will moderate further as the low-base effects dissipate,” CIMB Investment Bank Bhd economic research head Lee Heng Guie told StarBiz.
Tan Sri Dr Zeti Akhtar Aziz
He believes Bank Negara was likely to keep the benchmark overnight policy rate (OPR) steady at 2.75% to the end of the year after raising interest by 75 basis points this year.
“The argument for further monetary policy support has weakened as the central bank now has to worry about growth, which peaked in Q1,” Lee said.
He added that the flow-through of the 10th Malaysia Plan projects were now important with timely implementation critical for the economy this year and next.
Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz indicated as much at a press briefing yesterday when questioned on the outlook for the second half.
“There is a good deal of uncertainty on the horizon, growth in advanced economies have slowed; therefore, growth in our exports will be affected.
“We’ll see a more moderate level of growth but not to levels where we’ll have to worry,” she said, indicating that given the first half growth, the second half would certainly surpass the Government’s expectations of a 6% expansion.
However, Zeti added that robust domestic demand and intra-regional trade would still support the economy’s expansion.
Meanwhile, AmResearch Sdn Bhd senior economist Manokaran Mottain said that even if the economy were to slow down in the second half to 6.5%, an 8% full-year gross domestic product growth was still achievable.
He did not see any more increases in the OPR for the year as “a hike will choke off growth at this point”.
Meanwhile, RHB Research Institute Sdn Bhd economist Peck Boon Soon was still leaning slightly towards another OPR hike before year-end.
“Although we think Bank Negara is probably done with revising the rates upwards this year, there remains a slight possibility since the economy did well in the first half and was above expectations in Q2,” he said.
