Strong consumer spending spurs Malaysia’s growth

Bloomberg

Malaysia’s economy grew at the fastest pace in a year last quarter, as stronger consumer spending and an export recovery helped counter falling government expenditure.
Gross domestic product rose 4.5 percent last quarter from a year earlier, Bank Negara Malaysia said in an e-mailed statement on Thursday. The median estimate of 18 economists surveyed by Bloomberg was 4.4 percent GDP expanded a seasonally adjusted 1.4 percent from the previous three months The economy grew 4.2 percent in 2016 from 5 percent in 2015. Malaysia’s economy has come under pressure in recent years as lower commodity prices and a slump in global demand hurt exports and crimped revenue. Domestic consumption has been a key growth driver and the central bank has kept interest rates low to help support spending.
A rebound in oil prices gives the government more room to spend, allowing it to roll out infrastructure projects including new rail lines in the capital and a highway connecting the Borneo states of Sabah and Sarawak. The central bank took steps to curb offshore trading of the ringgit last year as it plunged about 10 percent against the US dollar in the past six months. Rising inflation may limit the scope for further policy easing to support growth.
“We expect Malaysia’s growth to stabilize at around 4.5 percent over the next couple of years,” Krystal Tan, an economist at Capital Economics Ltd. in Singapore, said in a note. “Against a backdrop of lackluster external demand, the non-commodity export sector is unlikely to provide a significant lift to the economy either, despite the boost to the competitiveness of Malaysian non-commodity exports from a fall in the currency.”“High levels of household debt will constrain private consumption growth,” she said. “What’s more, there is little scope for additional fiscal or monetary policy support to push growth higher.” “It is an encouraging set of numbers and affirms expectations that growth will remain in a relatively safe zone of above 4 percent,” said Julia Goh, an economist with United Overseas Bank Ltd. in Kuala Lumpur. “The only question I have is the resiliency of the services sector which, if it moderates further, could be a drag to overall growth. There’s also the risk of protectionist policies that could derail the recovery in global trade.”
Private consumption expenditure, which makes up about half of gross domestic product, climbed 6.2 percent last quarter from a year ago. Public sector spending fell 4.2 percent Exports rose 1.3 percent, after contracting in the previous three months. Growth in the services industry, the biggest in the economy, slowed to 5.5 percent in the fourth quarter from 6.1 percent in the previous three months. Manufacturing rose 4.8 percent from 4.2 percent.