JEDDAH/KUWAIT — Malaysia continues to outshine its South East Asian peers. In the third quarter of 2012, it logged in a better-than-expected growth rate of 5.2 percent year-on-year, an ever so slight ease from 5.6 percent in the previous quarter. Unlike its neighbors, the Malaysian economy is becoming increasingly reliant on its resilient domestic sector, against a backdrop of sluggish global demand, Dana Al-Fakir, economist at Kuwait-based KCIC, an investment firm specializing in emerging Asia investments, said in an analysis Sunday. Both a surge in investment and strong consumption levels managed to offset shortfalls in the trade sector and government expenditure, and keep growth buoyant into the third quarter. Private consumption was driven up by populist government spending, which included cash transfers to thousands of low-income households and higher wages for civil servants. The rise in investment levels was fuelled by both public and private capital spending: the government engaged in heavy infrastructure spending under its Economic Transformation Program, in a bid to lure in more foreign investors, and private capital spending was spurred by opportunities in the services sector, particularly the transportation, real estate and utilities sectors. Exports continue to get hammered by slowing global demand. The G3 countries (the US, EU and Japan) make up almost a third of Malaysia's export demand, but with the US struggling to sustain a strong economic recovery and the EU sputtering due to its lingering debt crisis, Malaysia's exports, a bulk of which are machinery and thus cyclical products, are faltering. If domestic demand and investment levels do remain high, they could continue to offset dwindling export demand and help the nation achieve its targeted economic growth rate of 4 to 5 percent by year-end and, simultaneously, support company earnings. Real gross domestic product (GDP) is a measure of the economic output or of the size of the economy - adjusted for inflation or deflation. It is the sum of the values of all final goods and services produced by that country or region over a given time period. The values depend on the quantities (volume) of the goods produced and their prices. Real GDP is a measure that holds prices constant by using a given year's value (the base date) for all items and services. Then these values are used to calculate GDP for years prior to the base year and subsequent years. The graph illustrates the expenditure breakdown of GDP, which consists of private consumption, government expenditure, fixed capital investments, exports and imports. Private consumption is a strong driver of growth in the domestic-oriented nation, but exports have traditionally contributed more to GDP growth, as illustrated by the graph. Malaysia is unlikely to witness any positive data on the export front anytime soon, unless an unexpected recovery takes place in the US and the EU. However, if the internal market holds firm, it could help cushion the downturn in external demand. This is the base case for the central bank, which explains why it has not eased its policy rate since early 2011, while some of its other Asian counterparts have had to cut interest rates to bolster growth. The robustness in domestic consumption can be mainly attributed to the government's cash giveaways to the poor and the implementation of the minimum wage for the very first time in May. Malaysia's policymakers enacted a minimum wage law to help support low-income households, in a bid to achieve a rich nation status by 2020 and please potential voters ahead of the elections, that are expected to be held early next year. The policymakers are hoping that the lowest paid will now be guaranteed enough income to lift them out of poverty and meet the rising costs of living. Thus, if the cash giveaways and minimum wage do continue to feed through into the hands of the consumer then the domestic economy will subsequently remain buoyant. Higher private investment, from more pipeline projects, is also expected to prop up growth. The shift from being an export-led economy to a more domestically driven one in Malaysia, is taking place faster than elsewhere, making the country increasingly attractive for companies catering for that sector. — SG
