MALAYSIA'S Q2 ECONOMIC GROWTH MODERATES TO 4.0 PER CENT

Malaysia's Q2 Economic Growth Moderates To 4.0 Per Cent

KUALA LUMPUR, Aug 17 (Bernama) -- The pace of growth of Malaysia's economy moderated to 4.0 per cent in the second quarter this year from a revised growth of 4.9 per cent in the first quarter due to weaker external conditions and slower growth in public sector spending, Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz, said Wednesday.

She said disruptions in the global manufacturing supply chain arising from the disaster in Japan and overall weakness in demand in advanced economies led to a slowdown in manufacturing, which grew by only 2.1 per cent.

Going forward, she said that the economy would be able to maintain its forecast of 5-6 per cent for the year underpinned by strong economic fundamentals as well projects coming on stream from the Economic Transformation Program (ETP).

The main source of growth in the second quarter continued to be underpinned by sustained expansion in private domestic demand and sustained intra regional trade supported by the export of commodities and resource-based products to the region," she told a press conference here when announcing the Gross Domestic Product (GDP) figures for the second quarter of 2011.

"Therefore, it was domestic demand that supported our growth in the second quarter this year," she said.

Asked whether the 5-6 per cent growth forecast would be maintained, she said: Right now, our assessment is very likely given the performance of the first half and that it (full year growth) will be closer to 5.0 per cent."

"Therefore, there is no revision at this stage but we will make a careful assessment when the 2012 budget is presented in October (and) if there is any revision to be made, it will be at that point in time.

"However, if we have the situation where the United States and Europe slips into recession or any other trigger factors that result in disruption in international financial markets, then we have to make a reassessment."

"But barring that from happening, our assessment is we can achieve at least 5.0 per cent growth because the economy still remains intact with strong consumption growth and a robust private sector investment.

"We know in the second half of this year, there will be more aggressive implementation of 10th Malaysia Plan and the ETP projects," she said.

The Statistics Department in releasing the details said the services sector remained stable, growing by 6.3 per cent with wholesale & retail trade continuing to be the main catalyst expanding by 7.3 per cent.

Manufacturing moderated by 2.1 per cent as the subdued performance in the electrical & electronic and transport equipment & other manufactures slackened the pace of the sector.

Agriculture rebounded to 6.9 per cent from a marginal negative 0.2 per cent in the preceding quarter mainly led by the double digit turn around in oil palm sub sector which stood at 22.3 per cent.

Construction eased to a marginal growth of 0.6 per cent supported by the better performance in residential and special trade sub-sector but negative growth in civil engineering sub sector affected the growth in construction.

As for the mining and quarrying sector, it continued its downward trend by decelerating to a negative 9.2 per cent in the current quarter due to the decrease in the production of crude oil by 21.0 per cent.

In this quarter the positive growth in the natural gas production of 2.7 per cent could not offset the negative growth in this sector, the department said.

Asked to comment on Ringgit's strong performance, the governor said the foreign exchange market has remained orderly which allowed two-way trade and foreign direct investments to take place efficiently.

"The appreciation has been absorbed by the Malaysian economy which is flexible in managing foreign exchange transactions," she added.

On whether there will be capital control if the Ringgit continued to appreciate, Zeti Akhtar said the financial system has been better able to intermediate these capital flows better than before because of the strengthened financial institutions and more developed financial market.

She added that Malaysia now had high reserves so "we have the capacity to manage accessively movement in the currency, whether it is depreciating or appreciating."

On whether there will be revision for inflation numbers, Zeti said it would depend on international development and global commodity prices.

She noted that for now the central bank would be sticking to its earlier projection of 2.5 per cent to 3.5 per cent.