Asia Times: Malaysia's 1st quarter GDP contracts by 1.3%



	June 25, 1999	atimes.com

Southeast Asia

Malaysia's 1st quarter GDP contracts by 1.3%

KUALA LUMPUR, June 24 Asia Pulse - Gross Domestic Product (GDP) contracted 1.3 percent in the first quarter of this year from a year earlier, based on a new base year of 1987 and a new methodology for calculation.

Announcing this Wednesday, Bank Negara Malaysia (central bank) governor Ali Abul Hassan Sulaiman said that first quarter GDP would have contracted by 1.6 percent, as mentioned by Prime Minister Mahathir Mohamad recently, using a previous methodology and statistical base year of 1978. Speaking at a joint press conference by the central bank and the Department of Statistics, he said the country was already out of its recession, judging from GDP growth of 1.4 percent registered in the February to March period compared with the year-earlier period.

''January wasn't good as manufacturing production was down substantially,'' he said. ''February and March registered 1.4 percent growth, so we've got positive growth and we are already out of the recession,'' Ali Abul added. Saying that the first quarter marked the end of negative (GDP) growth and four consecutive quarters of contraction, he added that second quarter GDP growth would return to positive territory.

''The third and fourth quarter GDP growth would not only be positive but substantially stronger,'' the governor said. He added that overall GDP performance for the year would be better than the one to two percent forecast earlier, with the manufacturing sector leading the country out of recession. ''I am not going to revise Bank Negara's official figures of one percent growth for 1999, although a lot of foreign research houses have been placing the GDP growth figure for Malaysia at higher levels,'' he said. ''The higher forecasts of many agencies could materialize."

''We can expect much higher growth in the second and third quarter,'' he said, adding that ''fund managers have indicated more than two percent growth this year."

Ali Abul said the manufacturing sector, which is second to the services sector in terms of its contribution to the GDP right now, would overtake the sector in no time and account for one-third of this year's GDP growth. Signs of recovery in the economy, first seen in the last quarter of 1998, strengthened in the first quarter of this year; indicators showed favorable developments in both the external sector and domestic economic conditions, he added.

Key indicators that continued to strengthen in the first quarter included the trade balance position, which stood at a substantial surplus of RM15.8 billion, and export growth, which improved further by 4.6 percent in U.S. dollar terms. The international reserves of Bank Negara reached US$31.3 billion as of June 15, sufficient to finance 6.9 months of retained imports; inflation moderated to four percent and consumer and investor confidence gained strength with car sales picking up strongly.

Ali Abul also said the retrenchment rate moderated further and loan approvals by banks for manufacturing and construction sector continued to increase. The minus 1.3 percent growth in GDP in the first quarter of this year reflected a significant moderation in the contraction seen in recent quarters following the onset of the Asian financial and economic crisis, he added.

This reflected a turnaround in manufacturing output, which increased by 4.6 percent in February and March, partially offsetting the decline in January. The manufacturing and construction sectors registered the most pronounced improvement in economic performance on the supply side in the first quarter of this year. Growth in value added of the services sector also turned around in the first quarter.

On the demand side, signs of recovery in aggregate domestic demand have also become more apparent with improvement in consumer spending, as reflected in the purchase of cars and higher total loan approvals for consumption credit contributed to a moderation in the decline of private consumption. Private investment, meanwhile, remained subdued because of the excess capacity in the system.

Ali Abul said the decline in aggregate domestic demand (excluding stocks) had moderated significantly in nominal and real terms to 9.2 percent and 9.1 percent during the quarter from declines of 24 percent and 28 percent in the fourth quarter of 1998. As for private sector activity, Ali Abul said it was gaining momentum judging from manufacturing output, which rose 4.5 percent in April, the third consecutive monthly increase, while gross imports in US dollar terms increased further by 14.3 percent.

More significantly, he said, imports of intermediate goods turned positive in April, auguring well for export performance in the second quarter. Money supply continued to expand, with M3 growing 5.7 percent in May, while growth in M1 turned positive, indicating the need for higher transaction balances to support the increase in economic activities.

As for the slower increase in the Consumer Price Index (CPI) the central bank chief said it was most noticeable in the food, gross rent, fuel and power and miscellaneous goods and services sub-groups. The Producer Price Index (PPI) declined by 4.1 percent in the first quarter, the first decline recorded since the second quarter of 1997, with lower prices reflected in both local and imported goods.

Ali Abul also said the labor market situation in Malaysia had improved in the first quarter of this year, reflecting improvements in the domestic economic and financial conditions. The number of job seekers registered with the Manpower Department rose only marginally by 0.8 percent to 33,605 at end-March after rising by 17.8 percent to 27,988 a year earlier. At the same time, the number of workers retrenched in the quarter declined to 11,454 persons from the peak of 26,238 in the third quarter of 1998.

(Asia Pulse/Bernama)

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