BNM – Malaysian economy contracted in the first quarter of 2009



The Malaysian economy contracted by 6.2% (4Q 08: +0.1%) in the first quarter of 2009, amidst a significant deterioration in external demand, following the deepening recession in advanced economies. The large inventory drawdown, particularly in the manufacturing and commodity sectors, also contributed to the decline in growth in the first quarter. Fixed investment registered a decline due toweaker business sentiment.  Public sector spending, however, provided some support to growth. On the supply side, all sectors recorded contraction except for the construction sector.


During the quarter, domestic demand registered a decline of 2.9% (4Q 08: 2.8%) as a result of more cautious spending by businesses and households following the weakening of overall business and economic conditions. Private consumption also declined marginally by 0.7% (4Q 08: 5.3%) as expenditure was affected by deteriorating labour market conditions. Consumer sentiments had, however, improved in the first quarter, with the MIER Consumer Sentiments Index increased to 78.9 points from 71.4 points in the fourth quarter of 2008.


Meanwhile, public consumption expanded by 2.1%, underpinned by higher spending on emoluments as well as supplies and services. During the quarter, gross fixed capital formation declined by 10.8% (4Q 08: -10.2%), due mainly to the weaker private investment activity, as business confidence deteriorated amidst the decline in external demand. Nevertheless, higher public sector capital spending, particularly on education, agriculture and rural development, reflected the Government’s commitment to mitigate the adverse impact of external developments on the domestic economy. Gross exports declined sharply by 20% following a sharp contraction in manufactured exports (-18%), as well as lower commodity exports. Performance of manufacturing exports was affected by lower demand for both electronics and electrical (E&E) and non-E&E products from major markets. In addition, commodity exports turned negative (-23.8%; 4Q 08:6.1%), reflecting the impact of lower prices and weaker demand.


On the sectoral side, all economic sectors experienced contraction, except for construction. The manufacturing sector declined significantly by 17.6% (4Q 08: -8.8%), led by the 23.1% contraction in the export-oriented industries. In particular, the E&E industry contracted steeply by 41.4%. The domestic-oriented industries declined by 15.9% (4Q 08: -2%) due to weakness in both consumer-and construction-related sub-sectors. The services sector was flat following a marginal decline by 0.1% (4Q 08: 5.7%), primarily affected by sub-sectors closely linked to the manufacturing sector. The agriculture sector recorded a contractionof 4.3% (4Q 08: 0.5%) due to lower output of both palm oil and rubber, while the decline in the mining sector of 5.2% (4Q 08: -5.7%) was due to falling crude oil and natural gas production. Meanwhile, the construction sector, turned around to register a positive growth of 0.6% (4Q 08: -1.6%) due mainly to an increase in construction of office space and the high-end segment of the residential sub-sector.


Headline inflation rate, as measured by the change in the Consumer Price Index (CPI), moderated to 3.7% in the first quarter (4Q 08: 5.9%) due mainly to lower inflation in the food and non-alcoholic beverages, and transport categories. Meanwhile, inflation in the housing, water, electricity, gas and other fuels category also moderated to 1.6% (4Q 08: 1.8%), reflecting the 2.5% reduction in electricity tariffs for households which came into effect on 1 March. Headline inflation continued to moderate to 3.0% in April. 


In the external sector, the trade surplus remained large at RM32.7 billion, as the contraction in imports was larger than that in exports. The larger decline in gross imports (-28.9%; 4Q 08: -12.2%) was due to lower imports of intermediate and capital goods amidst the decline in manufactured exports and the subsequent inventory adjustments as well as weaker investment activity.


On a cash basis, gross inflows of foreign direct investment (FDI) moderated to RM6.4 billion in the first quarter (4Q 08: RM9 billion), reflecting both lower inflows of equity capital and the drawdown of inter-company loans. After adjusting for gross outflows due mainly to repayment of inter-company loans, net FDI amounted to RM2.1 billion (4Q 08: RM3.4 billion), directed mainly into the manufacturing, services and oil and gas sectors. Overseas investment by Malaysian companies recorded a lower net outflow of RM3 billion (4Q 08: -RM8.1billion), largely for investment in the services sector. Portfolio investment registered a lower net outflow of RM9.5 billion (4Q 08: -RM24.8 billion), reflecting mainly lower net liquidation of both equities and debt securities by foreign investors.


The international reserves of Bank Negara Malaysia amounted to RM320.7 billion (equivalent to USD87.8 billion) as at 31 March 2009 and remained stable at RM321.5 billion (equivalent to USD88 billion) as at 15 May 2009. The reserves position is sufficient to finance 8.3 months of retained imports and is 3.8 times the short-term external debt.

Full report:

Bank Negara Malaysia

27 May 2009


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