Malaysia 2Q GDP Growth Beats Estimates, Rate Pause Likely

15 Aug 2012

--Malaysia's second-quarter GDP rises 5.4% on year, beating market forecast --Domestic demand to support growth going forward, says central bank governor --Prevailing policy rate remains appropriate, governor says (adds analyst comment in sixth-seventh paragraph, central bank governor's comments in fifth, ninth and 13th-15th paragraphs, inflation data in 12th paragraph) By Abhrajit Gangopadhyay KUALA LUMPUR--Malaysia's economy grew by 5.4% in the second quarter from a year earlier, topping market expectations and reflecting robust domestic investment and consumption that offset tepid demand for its exports. The data underscores the resilience of Southeast Asian economies with large domestic markets in the face of weaker demand for their products while key markets such as the U.S., Europe and China struggle with slowing growth and debt problems. Earlier this month, Indonesia reported a better-than-expected 6.4% growth in the second quarter, also driven by strong domestic demand. In the three months ended June, Southeast Asia's third-largest economy grew at a faster pace than the 4.9% expansion in the first quarter and well ahead of the 4.6% median forecast of 19 economists polled by Dow Jones Newswires. Ahead of elections expected by early next year, the government has undertaken populist spending, including higher wages for civil servants and cash handouts to the thousands of low-income population, that has helped spur consumption, keeping local demand firm in an economy that heavily relies on exports to power growth. The government's heavy spending to develop the country's infrastructure under its Economic Transformation Program also helped boost public investment. Domestic demand will continue to be sustained, helping to support economic growth, Bank Negara Malaysia Gov. Zeti Akhtar Aziz said at a press conference following the release of the data. "Growth will likely sustain at a strong pace of 4.9% year-on-year in second half of 2012, after expanding by 5.1% in the first half of the year," said Peck Boon Soon, chief economist at RHB Research. He also raised his full-year GDP growth forecast to 5% from 4.5% following the strong second-quarter print. "At the prevailing level of the overnight policy rate, monetary conditions continue to be supportive of economic activity," Ms. Zeti said, suggesting there's no need for monetary policy easing to further stimulate growth. The central bank has held the policy rate steady at 3% for seven consecutive rate reviews. Benign inflation also aids the central bank's current stance. The consumer price index--Malaysia's primary gauge of inflation--rose 1.4% in July, slowing from 1.6% in June, data from the Department of Statistics showed Wednesday. Ms. Aziz stressed that the central bank's 4%-5% economic growth forecast for 2012 remains on track, adding that growth will be closer to 5% if current conditions continue. However, the central bank is watching global developments because any sharp deterioration could hurt Malaysia's growth potential. "Going forward, the global economy faces increasing downside risks emanating from the developments in several major economies," Ms. Aziz added.