Economic and Financial Developments in Malaysia<\/p>\n
The Malaysian economy expanded at a stronger pace in the
\nsecond quarter of 2002. Sustained strength in domestic demand and
\na recovery in exports raised real GDP growth to 3.8 percent on an
\nannual basis, from 1.1 percent in the first quarter.<\/p>\n
Consumption spending was broad-based across the country and
\ngained momentum as an important source of growth in the quarter.
\nPrivate consumption increased at a faster rate of 5.6 percent
\n(1Q: 3 percent). Higher real incomes from the expansionary fiscal
\noperations of the Government, the improvement in export volume
\nand higher commodity prices, low interest rates and the easier
\naccess to financing provided a strong stimulus to private
\nconsumption.<\/p>\n
The important development in this quarter has been the
\nsignificant income effect from improved export volume and prices.<\/p>\n
For the first time since the first quarter of 2001, exports
\nrecorded a positive annual growth of 5.3 percent due to the
\nstronger growth in electronic exports and positive terms of trade
\nfrom higher prices for palm oil, rubber, cocoa and sawn logs. The
\nimpact of higher commodity prices on rural income and consumption
\nhas been significant. Public consumption was also higher by 15.4
\npercent on account of the salary adjustment for government
\nemployees and added supplies and services associated with the
\nfiscal stimulus.<\/p>\n
On the investment front, the decline in total gross fixed
\ncapital formation moderated significantly to 2.1 percent in the
\nsecond quarter (1Q 2002: -8.5 percent). In the private sector,
\ncompanies continued to utilize the existing capacity to meet the
\nincrease in demand, resulting in a higher capacity utilization.<\/p>\n
The low interest rate environment and the fiscal incentives
\nhave continued to provide support for investment in residential
\nconstruction. Investment was also sustained in oil and gas;
\ntransportation; and retail and wholesale trade. Improvements were
\nalso seen in the imports of capital goods and capacity
\nutilization rates. Investment by the public sector was higher,
\nbased on the significant increase in development expenditure of
\n42.5 percent in the second quarter. About one-half of the
\nexpenditure was for financing the development of social services,
\nsuch as education, health and housing.<\/p>\n
The services sector continued to provide the main support for
\nGDP expansion. In the second quarter, growth was further
\nstrengthened by a recovery in the manufacturing sector. Activity
\nin the manufacturing sector rebounded in the second quarter of
\n2002 to take the lead, with value added increasing by 5.6 percent
\n(1Q 2002: -2.3 percent), the first positive growth since the
\nfirst quarter of 2001. The improved performance was attributed to
\na stronger expansion in output of the domestic -oriented
\nindustries, due primarily to an upturn in the electronics
\nindustry. With the improved performance, the overall capacity
\nutilization rate in the manufacturing sector increased to 82
\npercent in the second quarter (79 percent in the first quarter).<\/p>\n
The output of the export-oriented industries as a group
\nrebounded to record a positive growth of 5.7 percent (1Q 2002:
\n-5.5 percent), with capacity utilization increasing to 82
\npercent. The turnaround was more pronounced in the electronics
\nindustry. Depleting inventories, improving orders, including
\nhigher demand for electronics in the Asia Pacific region saw
\nelectronics output and exports rising sharply by 23.5 percent and
\n16.5 percent respectively (1Q 2002: -0.8 percent and 1.1 percent
\nrespectively). The increase in output was strongest in the
\nintegrated circuits product segment. This was partly due to the
\ntransfer of production lines in Malaysia from the high cost
\nproduction centers as MNCs undertook corporate consolidation as
\nwell as inventory rebuilding.<\/p>\n
The construction sector registered a higher growth of 3.4
\npercent underpinned by underlying demand for affordable houses.
\nHigher Government construction spending on public projects also
\ncontributed to higher activities in the sector.<\/p>\n
Supported by the overall strengthening of demand conditions,
\ngrowth in the service sector was sustained at 4.5 percent (1Q:
\n4.4 percent). Of significance, the finance, insurance, real
\nestate and business services sub-sector expanded by 7.7 percent
\n(1Q: 8.7 percent). The favorable growth in this sector was
\nreflected in higher bank lending, especially for housing and
\nconsumer durables, higher demand for insurance products and
\nimproved performance in the Kuala Lumpur Stock Exchange. Growth
\nin the utilities sub-sector was also strong, attributed largely
\nto higher demand for electricity from the industrial and
\ncommercial users. Stronger growth was recorded in the wholesale
\nand retail trade, hotels and restaurants sub-sector, supported
\nlargely by higher consumer spending. The Consumer Price Index
\n(CPI), remained low at 1.9 percent compared to the second quarter
\nof 2001 (1.4 percent in the first quarter).<\/p>\n
Reflecting stronger economic activities and external demand,
\nboth exports and imports increased by 5.3 percent and 10 percent
\nrespectively. The overall trade surplus remained large at RM9.7
\nbillion despite the stronger increase of imports. All broad
\ncategories of imports registered positive growth. The increased
\nin imports of intermediate goods by 6.9 percent is indicative of
\norders beyond the second quarter. These imports were mainly for
\nthe export-oriented electronics industry, where imported inputs
\nfor this sub-sector increased by 23.5 percent.<\/p>\n
Inflows of funds for investment were higher during the
\nquarter. The Cash BOP Reporting System of Bank Negara Malaysia
\nindicated that the gross inflows of FDI in the form of direct
\nequity and inter-company loans amounted to RM3.3 billion in the
\nsecond quarter. The bulk of the funds were channeled into the oil
\nand financial services sectors. Due to loan repayments by non-
\nresident controlled by companies, FDI on a net basis was RM0.5
\nbillion.<\/p>\n
The international reserves of Bank Negara Malaysia increased
\nfurther to RM129.9 billion (US$34.2 billion) as at 15 August
\n2002, RM5.4 billion (US41.4 billion) higher than the level as at
\nthe end of the first quarter. Reserves growth has been primarily
\nfrom repatriation of export income and long-term investment
\ninflows, which have more adequately offset the periodic net
\nshort-term outflows. Since end-2001, reserves rose by RM12.6
\nbillion or US$3.3 billion. The reserve of RM129.9 billion is
\nadequate to finance 5.6 months or retained imports and is 5.1
\ntimes the short-term external debt.<\/p>\n
Malaysia's external debt position improved in the second
\nquarter. The total external debt declined to RM176.1 billion
\n(US$46.4 billion) as at end-June compared with RM178.4 billion
\n(US$46.9 billion) at end-March. External debt to GNP ratio
\nimproved to 54.4 percent. The improvement was attributable to the
\ndecline in both short-term external debt as well as medium and
\nlong-term external debt of the private sector, reflecting mainly
\nthe prepayments and repayments of loans as part of corporate debt
\nrestructuring.<\/p>\n
Since the last quarter the Corporate Debt Restructuring
\nCommittee (CDRC) has completed an additional four restructuring
\ncases and discharged two cases. Another case is still pending
\nlenders' approval and would be monitored by Danaharta. The
\nclosure of CDRC was effective on 15 August 2002, after
\nsuccessfully resolving 47 cases or 98 percent of the number of
\ncases accepted with total debts amounting to RM43.97 billion. The
\nrecovery profile of the resolved cases has shown that 83 percent
\nof the recovery proceeds were in the form of cash, redeemable
\ninstruments and rescheduled debts.<\/p>\n
Prospects for the Malaysian economy remain favorable. In the
\nsecond half-year, growth is expected to be supported by continued
\nexpansion in domestic and external demand. On the domestic front,
\nthe composite index of leading indicators registered the eleventh
\nconsecutive positive growth in May, suggesting that the Malaysian
\neconomy is in its expansion phase.<\/p>\n
During the period March to April 2002, four international
\ncredit rating agencies, namely Standard and Poor's, Moody's
\nInvestors Service, Fitch Ratings and Rating and Investment Inc.
\nrevised Malaysia's sovereign ratings outlook from 'stable' to
\n'positive'. Overall, these agencies attributed the positive
\nrevision to the country's strengthening financial sector,
\naccelerated corporate restructuring activity, continuing large
\ncurrent account surplus, robust international reserves and
\nliquidity and broad economic soundness.<\/p>\n
On 7 August 2002, Fitch Ratings upgraded Malaysia's long-term
\nforeign and local currency ratings by single notches to 'BBB+\"
\nfrom 'BBB' and 'A' from 'A-\", respectively, with a 'stable'
\nratings outlook. On 20 August 2002, S&P raised Malaysia's long-
\nterm foreign and local currency ratings by single notches to
\n'BBB+' from \"BBB' and 'A+' from 'A', respectively, with 'stable'
\nratings outlook.<\/p>\n
(Edited from Bank Negara Malaysia's Second Quarter Report)<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/economic-and-financial-developments-in-malaysia-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }