4.6% Q1 growth

The Malaysian economy grew by 4.6% in the first quarter of the year as domestic demand overcame the modest recovery in advanced economies with all segments but the primary sector posting growth.

“We expect the economy to remain on a steady growth path,” said Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz at the release of the first quarter data.

Domestic demand expanded by 6.6% as private sector investments and government consumption grew. Private consumption rose by 6.7% on favourable labour market and income growth while gross fixed capital formation was up 6.5% as companies invested more amidst high capacity utilisation rates and planned investment projects.

On the supply side, all sectors showed growth except for the primary commodities sector which was affected by poor weather and lower crude oil production.

Net foreign direct investments in the quarter was RM4.6bil. In terms of gross figures, 49% of foreign investments came in to the manufacturing sector with financial services the next largest component with 27%.

The quarter also saw foreign reserves hit a record with RM4.7bil worth of portfolio funds flowing into Malaysia with most headed to the debt market.

While the ringgit appreciated against the dollar and reserves were up, Zeti said intervention by Bank Negara was not what drove reserves up. She said intervening in the currency market was only done to ensure the orderly performance of the ringgit.

Inflationary pressure has been a concern for the central bank and Zeti feels any tweak to the inflation forecast would be made if adjustments to petrol subsidies were more than expected.

She said crude oil prices where they are at the moment at US$110 a barrel, would not pose a big risk to the country's growth prospects but will if crude oil was to head towards its previous record of US$147 a barrel.

Inflation rose to 3.2% in April but given where the price of crude oil is, Bank Negara is comfortable with the consumer price index (CPI) averaging between 2.5% and 3.5% this year with monthly readings intermittently exceeding the upper end of the band.

Zeti said the exchange rate would not be used as a policy to mitigate inflation in the country.

“There are other policy measures to deal with inflation,” she said.

Commenting on the possibility of more mergers and acquisitions within the financial sector, Zeti said the central bank has allowed the market to take their own course.

“They will decide on the outcome,” she told reporters.

Goldman Sachs, in a note, said inflationary pressures in the coming months would rise and had forecast inflation for 2011 at 3.6%.

“We continue to expect Bank Negara to hike rates by 25 basis points, taking the overnight policy rate to 3.25% at their next meeting in July,” it added.

Bank Negara in a statement said the global economic recovery continued to strengthen in the first quarter of the year but remains uneven.

“More recently, several developments in the global economic environment and the international financial system have highlighted the fragility of global growth,” it said.

“However, in the event of higher commodity prices being sustained over an extended period, the escalation of fiscal conditions in the advanced economies and possible global supply disruptions following the developments in Japan, the downside risks to growth may increase.”

MIDF Amanah Investment Bank Bhd chief economist Anthony Dass expects Malaysia's economic momentum to gain, driven by domestic demand, pickup in private investments, growing exports and a low base in the second half effect.

“We expect the economic growth momentum to accelerate in the second half of 2011 when rebuilding takes place in Japan, boosting commodity prices and demand for timber,” he said in a note.

MIDF revised upwards its 2011 real GDP to 6.1% from 5.3%.

Source:http://biz.thestar.com.my/news/story.asp?file=/2011/5/19/business/20110519065551&sec=business