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Analysis / News
Malaysia's growth expected to moderate in Q2 THE Malaysian economy is expected to moderate in the second quarter of this year from a robust 7.1 per cent in the first quarter, due largely to the slowing domestic consumption. Economists expect the impact of the fuel price hike in June to dampen private spending, which has been a key driver for the economy in recent years. Bank Negara Malaysia will announce the second quarter results on Friday. DBS Bank said while domestic demand is expected to remain the key driver of the economy, it is set to moderate in future. "Exceedingly high inflation and political instability will have significant downside impact on domestic consumption and investment. "Purchasing power of consumers and profit margins of firms will be squeezed due to rising costs, while political uncertainties will depress consumer and investment sentiments, which have started to wane since the election in March," said DBS Bank economist Irvin Seah. The slowdown in domestic demand will be compounded by an even sharper decline on the external front as apart from the US, key export markets such as the European Union and Japan are treading close to recession while growth outlook in many Asia economies is also pointing south. US investment bank Citi said industrial production slowed to 3.3 per cent in the second quarter from 5.8 per cent in the first quarter, pointing to a slowdown in manufacturing and export volume growth, even as elevated commodity prices pushed up nominal export growth.It said motor vehicle sales moderated in June, while the plunge in the Malaysian Institute of Economic Research consumer sentiment index to levels below those seen during the financial crisis points to the downside risks to private consumption.Citi expects growth to see a more pronounced slowdown in the second half as a higher base effect from last year, slowdown in external demand, the impact of the higher "oil tax" on consumption, and possible erosion in rural incomes from falling crude palm oil prices become more pronounced.