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Home | Malaysia | Maylaysia Overview | Economy

High-frequency data indicate a worsening global economic outlook.

In June, both global manufacturing and services were down, as indicated by the JPMorgan Global Manufacturing PMI and the JPMorgan Global Services Business Activity Index.

And in the first week of July 2012 alone, three major central banks - European Central Bank, Bank of England, and the People's Bank of China - all eased monetary policy.

In Malaysia, the pace of growth of the economy in the first quarter of 2012 moderated to 4.7 per cent (4Q11: 5.2%, 3Q11: 5.7%).

On the demand side, this was due to slower growth of public consumption and net exports. The former grew just 5.9 per cent year-on-year, considerably down from the levels achieved in the last two quarters of 2011 (4Q11: 22.9%; 3Q: 21.1%). The latter, against a backdrop of poor external demand due to slow global economic growth, fell 20.8 per cent year-on-year. Latest data for June meanwhile show that the annual import growth of 6.3 per cent in China, a major destination for Malaysian exports, is just half of the 12.7 per cent achieved in May.

Going forward, domestic demand is expected to remain the main economic growth driver given the negative external developments, with private and government consumption continuing as key economic growth drivers.

MIER's second quarter Consumer Sentiments Index was essentially unchanged quarter-on-quarter at 114.9 points, marginally up from 114.3 points in the first quarter. The pertinent question here is whether this is a signal that consumer confidence is currently exhibiting signs of struggling optimism.

Some other private consumption indicators are already showing signs of slower growth in the coming months. The rollout of major ETP projects and the resulting increase in gross fixed capital formation will hopefully take up some of the slack.

On the supply side, all economic sectors expanded, though only construction and mining grew at faster rates. Construction grew 15.5 per cent year-on-year, having benefitted tremendously from various ongoing civil engineering projects.

All the major economic sectors are projected to register growth in 2012, albeit at a slower pace.

The services sector is expected to continue playing an important role in driving the economy. Recent data however suggest that there is a distinct possibility that services activity might slow down going forward, considering that at the global level, the services sector has already taken some hits. For example, the June JPMorgan Global Services Business Activity Index indicated that the sector's output expansion was the weakest in the current near three-year growth period.

Manufacturing will also likely expand slower in the coming months. The results of the second quarter MIER Business Conditions Survey, which covers the manufacturing sector, indicated a slower expanding manufacturing sector. The second quarter Business Conditions Index had fallen 5 points quarter-on-quarter to 111.5 points.

The second quarter results of MIER's other four sectoral surveys came in mixed.

The Auto Index, after dipping below the 100-point threshold in the first quarter, rebounded by 40 points to settle higher at 120 points. The Retail Trade Index also rebounded, rising by 34.1 points to register 119.4 points. The remaining two sectoral surveys - the Residential Property Index and the Tourism Market Index - meanwhile settled lower in the second quarter. The former fell 5.2 points quarter-on-quarter to 118.5, while the latter fell 7.9 points to settle lower at 117.3 points.Malaysia has one of the highest standards of living in SE Asia, largely because of its expanding industrial sector, which propelled the country to an 8%–9% yearly growth rate from 1987 to 1997. Growth contracted during the 1997–98 Asian financial crisis, and the government was forced to cut spending and defer several large infrastructure projects. Unemployment and interest rates rose, and thousands of foreign workers, many of them from Indonesia, were forced to leave the country. The economy began recovering in 1999, and growth continued into the early 21st cent. Despite long-term efforts of the government to improve the economic status of Malays through preferences, the Chinese have generally continued their long-standing dominance of the economy. The economic status of Malays, however, has significantly improved, leading to resentment among South Asians who, though largely poor, are not eligible for the opportunities open to Malays.

Malaysia is a large producer of rubber and tin; palm oil, crude petroleum and petroleum products, electronics, textiles, and timber are also important. Since the late 1980s, the government has moved to privatize large industries that had been under state control, and foreign investment in manufacturing has increased significantly. Pinang city is the chief port. Subsistence agriculture remains the basis of livelihood for about 13% of Malaysians and agriculture provides about 8% of GDP. Rice is the staple food, while fish supply most of the protein. Cocoa, coconuts, and pepper are also important agricultural products. Industry is largely concentrated in West Malaysia. The major cities on the Malay Peninsula are connected by railroads with Singapore, and an extensive road network covers the west coast. Malaysia's exports include electronic equipment, petroleum and liquefied natural gas, wood and wood products, palm oil, rubber, chemicals, and textiles. The main imports are electronics, machinery, petroleum products, plastics, vehicles, iron and steel, and chemicals. The major trading partners are the United States, Singapore, Japan, and China.

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