Malaysian Exports Withstanding European Crisis Help Boost Economic Growth

Malaysia’s economic growth accelerated in the third quarter, bolstered by rising exports and investment that helped the Southeast Asian nation weather the deepening European crisis.

Gross domestic product rose 5.8 percent in the three months through September from a year earlier, after expanding a revised 4.3 percent in the previous quarter, Bank Negara Malaysia said in a statement in Kuala Lumpur yesterday. The median of 25 estimates in a Bloomberg News survey was for a 4.8 percent expansion.

Growth in Southeast Asian economies including Malaysia and Thailand may have peaked last quarter, with authorities in Singapore and Indonesia cutting growth forecasts in recent weeks. Most Asian currencies have fallen in the past three months on concern the nations that led the recovery from the 2009 global recession will falter, adding pressure on policy makers to cut interest rates.

“This stronger-than-expected growth spurt does not change our outlook of a significant slowdown over the next few quarters as the Europe sovereign-debt crisis deepens, sluggish housing and labor markets in the U.S. persist, and cooling measures in China bite,” said Azrul Azwar Ahmad Tajudin, Kuala Lumpur-based chief economist at Bank Islam Malaysia Bhd.

Malaysia’s ringgit and benchmark FTSE Bursa Malaysia KLCI (FBMKLCI) Index fell yesterday before the economic report. The currency has dropped more than 5 percent in the past three months.

Currency Intervention

“Most central banks in our region had intervened, and Bank Negara will do so in the event of excessive movements in any one day that will be destabilizing to our foreign exchange market,” central bank Governor Zeti Akhtar Aziz said in Kuala Lumpur yesterday. “But our intervention is entirely to smooth out this excessive volatility or movement in any one particular day, and we do not influence the underlying trend of the exchange rate.”

While the global growth outlook has become “significantly more uncertain,” prospects for emerging economies remain positive, Zeti said. Domestic spending will support Malaysia’s economy even if the more challenging international environment presents greater downside risks to Malaysia, she said.

The government cut its forecast for 2011 economic expansion last month and said there is increased “pressure” to use fiscal resources to bolster growth. Malaysia’s GDP will probably expand 5 percent to 5.5 percent this year, Prime Minister Najib Razak’s administration said Oct. 7, less than an earlier target of as much as 6 percent.

Interest Rates

Malaysia hasn’t cut interest rates even as Indonesia and Australia lowered borrowing costs this quarter. In neighboring Thailand, which will give its economic report for the third quarter on Nov. 21, the central bank has signaled it may consider cutting borrowing costs as the worst floods in almost 70 years curb growth. The Bank of Thailand kept rates unchanged in October for the first time in 2011.

Malaysia’s inflation may remain relatively stable for the rest of the year and moderate in 2012, Zeti said yesterday. Monetary policy remains supportive of the economy and current interest rate levels are considered “appropriate,” she said.

“Our interest rates at 3 percent remain supportive of growth, unless there are any significant developments that pose major risk to our domestic growth, and if there are any developments in inflation,” Zeti said. “When Bank Negara Malaysia reduced rates to 2 percent, it was during the most exceptional of times where the risk to major economic contraction was on the horizon.”

Manufacturing Expands

The current conditions are not similar to those and Malaysia’s central bank doesn’t foresee the kind of economic contraction that was experienced during 2008 and 2009, she said.

Malaysia’s manufacturing industry grew 5.1 percent in the third quarter from a year earlier, accelerating from 2.1 percent in the previous three months, and services gained 7 percent after climbing 6.8 percent previously.

Gross exports climbed 11.4 percent, aided by non electronics and commodity shipments, the central bank said. Investment as measured by gross fixed capital formation advanced 6.1 percent.

“Commodity exports have held up quite well, that’s supporting growth in the third quarter,” Leif Eskesen, a Singapore-based economist at HSBC Holdings Plc, said before the report. “Growth is going to slow from here onwards.”

Najib’s Projects

Investment has accelerated in Southeast Asia’s third- largest economy since Prime Minister Najib Razak’s government last year identified $444 billion worth of private sector-led projects to spur growth. International Business Machines Corp., Toshiba Corp. and Agilent Technologies Inc. are among companies pledging new investments in Malaysia.

Bank Negara Malaysia left interest rates unchanged for a third straight meeting this month.

“We are penciling in two rate cuts in 2012,” said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch, citing “weak global growth with a recession in Europe and contained inflation pressures.”

To contact the reporters on this story: Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net; Michael J. Munoz in Hong Kong at mjmunoz@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.

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