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Malaysian economy grows 6.3% in 2007

Strong domestic demand boosted fourth-quarter growth to 7.3%

THE Malaysian economy expanded 6.3 per cent in 2007, with strong domestic demand propelling fourth-quarter growth to 7.3 per cent.

According to figures released by the central bank yesterday, growth was broad-based in all economic sectors. The services sector continued to be a key driver, expanding 9.1 per cent in Q4. Manufacturing’s 5.6 per cent pace was supported by an improvement in export-oriented industries including the electrical and electronic sector, particularly computers and parts. The construction sector, closely watched because of its huge multiplier effect, registered 4.7 per cent expansion.

The agriculture and mining sectors also turned in robust performances, underpinned by bullish commodity prices. Output rose 6.9 per cent and 7.2 per cent respectively.

Ahead of a general election on March 8, analysts expected the figures to be used by the incumbent National Front coalition to argue why voters should stick with it.

In its election manifesto this week, the Front released a slew of figures on its management of the economy since Prime Minister Abdullah Badawi won a landslide victory in 2004 – though he is expected to come up against much tougher opposition this time.

CIMB Research economist Lee Heng Guie stuck by his gross domestic product (GDP) forecast for the current year of 5.8 per cent, which he said will be led by domestic demand driven by strong private consumption spending.

Domestic demand in Q4 was an impressive 9.8 per cent but softer than 12.6 per cent in Q3.

Gross exports expanded a sharp 7.5 per cent in Q4 compared with less than one per cent in Q3, mainly due to higher commodity exports and a turnaround in manufacturing exports. The latter grew almost 3 per cent – a reversal of a 2 per cent contraction in Q3.

Given the ‘intensification of the global slowdown’, CIMB’s Mr Lee said that it remains to be seen whether the pick-up in exports can be sustained. ‘It’s too early to confirm export recovery,’ he said, adding that the local economy could be vulnerable in a prolonged US slowdown or recession. Inflation was a mere 2.2 per cent in Q4 – mainly because fuel, gas to generate power, and many basic food supplies are heavily subsidised. Once the general election is over, it is expected that subsidies – particularly for fuel and gas – will be slashed.

‘Invariably, higher inflation will constrain consumer spending, but there would be off-setting gains in improved incomes because of stronger commodity prices,’ Mr Lee said. The Employees Provident Fund (EPF) withdrawal scheme for mortgage payments,

which attracted 14,600 applications amounting to RM220 million (S$96.2 million) as at mid-February, will also help, be believed.

Still, he pointed out that the middle-class would be far less cushioned in an inflationary squeeze.

Source: Business Times 28 Feb 08

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