Economic growth slows down to 4.6% in 2008

By FINTAN NG

The country’s economy grew 4.6% in 2008 compared with 6.3% in 2007 as domestic demand continued to provide support to growth, driven mainly by private consumption and public spending, the central bank says.

But economic growth in the fourth quarter (Q4) registered a sharp slowdown amid weakening domestic demand and falling exports.

Gross domestic product (GDP) growth in Q4 stuttered to 0.1% compared with 4.7% in Q3.

Net real exports of goods and services slumped 40.1% compared with 14.8% in Q3, it says in a statement.

During the quarter, domestic demand expanded 3.1% against 6.5% in Q3, with public consumption, which grew by 13.8% against 6.9% in Q3, underpinning the expansion, it says.

Private consumption moderated to 5.3% (Q3: 8.1%) as manufacturing sector retrenchments, lower consumer confidence and a reduction in smallholders’ income arising from the significant drop in commodity prices constrained spending activity.

On the supply side, “the slowdown was across all economic sectors, led by a sharp decline in the manufacturing sector,” the central bank says.

The manufacturing sector saw a contraction of 8.8% in Q4 (Q3: 1.8%), particularly in the export-oriented industries, which contracted by 12.3% (Q3: -1.1%) due to the significant slowdown in global demand.

“Domestic-oriented industries also recorded a negative growth of 2.5% (Q3: 8.4%) as production of construction-related materials declined,” it says.

The central bank says the agriculture sector registered a lower growth of 0.5% (Q3: 3%) “due to a moderation in the production of palm oil while output for rubber declined”.

The mining sector contracted by 5.7% (Q3: -0.3%) on lower oil and gas output while the construction sector declined by 1.6% (Q3: 1.2%), it says.

During the quarter, the services sector remained the key driver of growth, expanding by 5.6% (Q3: 7.1%). “Growth in the sector was supported by the wholesale and retail trade as well as accommodation and restaurant sub-sectors,” it says.

Bank Negara says inflation is expected to continue to trend downwards in 2009, with headline inflation moderating to 5.9% in the quarter under review due mainly to a series of downward adjustments of retail fuel prices by the Government.

The trade balance recorded a lower surplus of RM32.8bil (Q3: RM41.8bil) with exports contracting 7.4% (Q3: 16.8%), reflecting a sharp contraction in manufactured exports, it says.

“Performance of manufacturing exports was affected by lower demand for both electronics and electrical (E&E) and non-E&E products from the major markets as well as weaker global semiconductor prices,” it says, adding that growth in commodity exports moderated significantly to 6.1% (Q3: 48.1%).

Net foreign direct investments amounted to RM3.4bil (Q3: RM2bil), with the bulk of it flowing to the oil and gas industry as well as the manufacturing and services sectors, according to Bank Negara.

Net funds raised in the capital market were significantly higher at RM14.3bil due largely to higher funds raised by the public sector, which amounted to RM13.9bil.

“In the private sector, net funds raised through the private debt securities market amounted to RM229mil while funds raised through the equity market amounted to RM222mil,” it says.

The financial position of the banking system remains sound with the capacity to continue to support the financing needs of the economy, the central bank says.

“As at end-December 2008, the banking system’s risk-weighted capital ratio and core capital ratio were maintained at high levels of 12.7% and 10.6% respectively,” it says.

It adds that net non-performing loans improved by 5% to RM15.8bil (Q3: RM16.6bil) to account for a lower share of total net loans at 2.2% (Q3: 2.4%).

Economists say GDP growth would contract further this year.

CIMB Research chief economist Lee Heng Guie says the performance in the second-half year would depend on the global situation stabilising as well as spending on the part of the Government.

He says onus now is on the fiscal action since Bank Negara has front-loaded a rate cut totalling 150 basis points.

“Besides the RM7bil from the first stimulus package, people have forgotten about the RM51.7bil capital spending that has already been approved for 2009,” Lee tells StarBizWeek.

Citigroup Inc economist Kit Wei Zheng says in a report that the economy will contract 2% to 3% in the first-half with a return to positive growth not likely till Q4 this year.

“External demand headwinds remain formidable, which will deepen the recession and limit the pace and sustainability of any recovery,” he says.

He adds that domestic demand is also giving way due to a deteriorating labour market.