Moody’s: Malaysia must continue developing ETP Initiatives

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“With growth policies intact, the Government is set to continue, if not accelerate, the development initiatives under the ETP,” states Moody’s.

By Zhen M

The Government must continue to develop initiatives under its Economic Transformation Programme (ETP) because the ETP has been particularly successful in reviving private investment, opined international rating agency Moody’s Investors Service.

It noted that, since the ETP’s promulgation in 2010, private gross fixed-capital formation averaged annual growth of 16.6% from 2010 to 2012, up from 2.9% between 2005 and 2009.

“With growth policies intact, the Government is set to continue, if not accelerate, the development initiatives under the ETP,” it had said in a commentary on the recently concluded 13th General Election.

It said that Barisan Nasional (BN)’s retention of the Government assures the continuation of Malaysia’s pro-growth policy, an outcome which is credit positive for the sovereign rating and the ratings of government-related issuers (GRIs).

Similarly, the removal of election uncertainty, coupled with additional fiscal transfers promised during the campaign, should help sustain the momentum of investment and economic growth over the next two years.

According to Moody’s, budgetary support for household consumption had further bolstered domestic demand, providing a significant offset to the relative weakness in net exports, in view of Malaysia’s heavy reliance on external trade.

In a separate statement, Moody’s note that Malaysia’s growth pace had moderated in the opening months of 2013.

“The sputtering export engine cut growth; exports contracted year-over-year for a third straight quarter, reflecting weak global demand for the country’s key electronics goods. But domestic economy remains strong,” it emphasised.

Rising capital imports and the continuation of infrastructure investments will help the economy grow strongly in coming quarters, it added.

On Wednesday, 15 May, Bank Negara Malaysia in its update on the economic and financial developments of the Malaysian economy in the first quarter (1Q) of 2013 highlighted that strong domestic demand had sustained the nation’s growth amid weaker external demand.

“Amid a weak external environment, the Malaysian economy expanded by 4.1% in 1Q (4Q 2012: 6.5%), supported by stronger domestic demand that expanded by 8.2% during the quarter (4Q 2012: 7.8%). Private consumption recorded a strong growth of 7.5% (4Q 2012: 6.2%), driven by sustained income growth and favourable labour market conditions. This was further supported by the implementation of the minimum wage policy. Growth in public consumption, however, moderated to 0.1% (4Q 2012: 1.2%), amidst lower spending on supplies and services,” it said.

Growth in gross fixed-capital formation remained firm, rising by 13.2%, underpinned by capital spending by both the private and public sectors. Private investment grew by 10.9%, supported by continued capital spending in the domestic-oriented manufacturing and consumer-related services subsectors, in addition to the ongoing implementation of projects in the oil and gas (O&G) sector. Public investment expanded by 17.3%, driven by higher capital spending by public enterprises in the O&G, utilities and telecommunication sectors, while Federal Government development expenditure was channelled mainly into the transportation, education, and trade and industry sectors.

On the supply side, growth in the manufacturing sector slowed, weighed down by the weak external conditions. Growth in the agriculture sector was sustained on account of higher production of palm oil, while the mining sector declined due to lower production of crude oil. In the construction sector, growth remained firm, led mainly by the civil engineering sub-sector.

“Despite the weakness in trade-related activity, the services sector continued to expand, driven largely by sub-sectors catering to the domestic market,” it noted.

In the external sector, the nation’s current account surplus narrowed in the first quarter to RM8.7 billion, equivalent to 3.9% of GNI, due to a lower goods surplus, as well as a larger services deficit and income outflows. The financial account turned around to record a net inflow of RM1 billion (4Q 2012: -RM10.3 billion), as inflows of direct and portfolio investment from non-residents outweighed outflows arising from direct and portfolio investment undertaken by residents. The overall balance of payments recorded a surplus of RM4 billion (4Q 2012: +RM5.9 billion).

Going forward, Bank Negara expects domestic demand to remain as the key driver of growth, driven by sustained private sector expansion and supported by the public sector. “While global developments will continue to present downside risks, intra-regional trade is expected to reinforce the growth performance,” it said.

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Photo credit: PETRONAS Gas Berhad

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