Malaysia economic growth slows to 4% in Q2

Malaysia’s economic growth slowed to 4  per cent in the second quarter from a year ago, in line with expectations, while inflation in July came in slightly under forecast, giving the central bank room to hold rates at its next policy review in September. Strong crude oil and palm oil prices supported the trade-reliant economy in the second quarter of 2011, but a slow recovery in manufacturing weighed on overall growth, central bank data showed.Bank Negara, the first Asian central bank to lift borrowing costs in 2010, said the uncertain global environment weighed on the domestic economy, but Governor Zeti Akhtar Aziz said she was confident the country could achieve its targeted growth for 2011.“Right now based on our assessment, growth can achieve at least 5 per cent,” she told reporters at a media briefing.“However, if we have a situation where the US or Europe slips into recession or if there is any trigger factor that results in disruptions in the international financial markets, then we have to make a reassessment.” Economists said they expected the central bank to keep rates steady through the rest of the year because of the threat to growth.“Given gathering headwinds from the West, volatility in the financial markets and manageable inflation risks, BNM (Bank Negara Malaysia) might prefer to sit on their hands yet again in September and err on the side of caution by maintaining rates unchanged for the rest of the year,” said Radhika Rao at Forecast Pte.However, Zeti said she expects growth in the second half of 2011 to be better than the first half because of a lower base last year and accelerated spending from the country’s economic transformation programme.The median forecast of a Reuters poll of economists had predicted the economy grew 4.0 per cent in the second quarter from a year earlier. The poll also predicted that annual inflation in July was 3.5 per cent, while the government reported on Wednesday a figure for last month of 3.4 per cent.   GDP growth in the first quarter was a revised 4.9 per cent year-on-year. While inflation has been ticking up in the Southeast Asian country, the central bank has been focusing on boosting growth and relying on a strengthening currency to cool inflation rather than just interest rate increases.  The Malaysian ringgit has risen about 1.5 per cent against the dollar since August 9.Concerned about the European debt crisis and a possible double-dip recession in the United States, some economists have revised down their 2011 growth projections.The median forecast of 15 economists for Malaysia’s full-year GDP growth is 5.0 per cent, in line with the recent official forecast.Until recently, most economists were expecting a rate increase of at least 25 basis points in September as strong demand and high energy prices were keeping inflation elevated. However, economists now believe that the global financial markets turmoil will spill over to Malaysia’s domestic economy, forcing the central bank to keep its interest rates on hold despite high inflation.Traditionally, growth has been a bigger factor than inflation for Malaysia’s central bank when deciding on interest rates.Malaysia’s GDP figures follow data on other Asian economies like China, Singapore and South Korea, which recently reported a slowdown in their growth.However, regional peer Indonesia seems insulated from the global crisis. The country reported its second-quarter GDP at a robust 6.5 per cent year-on-year as it saw strong exports and attracted hefty investment.The 3.4 per cent inflation figure for July compares with June’s 3.5 per cent, a 27-month-high reached because of increases in power tariffs and rising fuel prices. Despite the moderation, Zeti said getting a handle on inflation remained a top priority.“Inflation will be monitored very closely,” she said. “As you know, if we have high inflation will undermine our prospects for future growth so this is being addressed on all fronts.” The central bank however said it maintained its forecast for inflation to average 2.5-3.5 per cent for the year.    From / Gulf Today