Looks like a Slower H2

Jeeva Arupalam writes i nthe online STAR about the ebbing fortune for growth in Malaysia comes the second half of 2011.

Read his whys and wherefores below.

" The first half of this year would see slower economic growth due to last year's high-base effect, before growth expands in the second half as economic activities pick up steam.

Private consumption would help sustain the country's economic growth in the first half this year (1H11) due to the low interest rate environment, while recovering export growth and stronger private investments growth will spur overall growth in the second half of the year (2H11).

According to economists contacted by StarBiz yesterday, local gross domestic product (GDP) estimates for 1H11 range between 3.6% and 4.7% while local GDP forecasts for 2H11 varies from 5.9% to 6.5%.

“We have reduced our full-year GDP forecast this year from 6% to 5.5% and expect dampened sentiment to weigh on first-quarter (1Q) GDP results due to easing of external demand. If it was not for domestic demand, it could been much worse,” said AmResearch Sdn Bhd economist Manokaran Mottain.

According to the Department of Statistics, Malaysia's November exports last year expanded 5.3% year-on-year (y-o-y) to RM52.7bil. The numbers when compared with the preceding month was a decline of 4.1% due to comparatively lower demand from key developed markets, particularly for electrical and electronic products.

In a report yesterday, Manokaran said the exports performance clearly reflected easing external demand as well as the disappearance of the low-base effect from 2009.

“It also reflected the loss of competitiveness from the appreciation of the local currency against the US dollar. The ringgit was trading at an average of 3.1166 per dollar in November 2010 against 3.3894 during the corresponding month in 2009,” he said.

Manokaran expects similar performance for December 2010 and maintains an export growth forecast for 2010.

“We are now looking at a smaller growth of 4.3% in the final quarter of 2010, after a disappointing 5.3% GDP growth in third quarter of 2010, which will drag the full-year growth much lower,” he said.

AmResearch quarterly GDP growth forecasts for 2011 include 4.2% for 1Q, 5.2% for second quarter (2Q), 5.8% for third quarter (3Q) and 6.6% for fourth quarter (4Q).

Manokaran said the economic growth in 2H11 would be driven by spending on government-related projects under the Economic Transformation Programme (ETP) and the 10th Malaysia Plan.

Economists agreed that the implementation of the entry-point projects under the ETP would only be felt in 2H11, subject to early project announcements in the current quarter.

MIDF Research chief economist Anthony Dass said private consumption would remain resilient and grow by 6.7% this year, supported by a healthy liquidity flow as well as positive terms of trade and commodity prices.

Anthony said that private consumption would be the driver in the 1H11 due to the low interest rate environment, but adds that the overnight policy rate could see a 50-75 basis points hike this year.

MIDF Research quarterly GDP growth forecasts for 2011 include 3% for 1Q, 4.2% for 2Q, 5.4% for 3Q and 7.5% for 4Q.

In his report yesterday, Anthony said the economy would face a tough hurdle to see exports pick-up in 1H11 underpinned by global uncertainties that will continue to dampen external demand for electrical and electronics and stronger ringgit against the US dollar at a projected average of 3 per dollar this year.

“We think commodities would lend support to our export growth, backed by sustainable demand from China and India, who are significant consumers of raw materials. This would keep commodity prices firm this year,” he added.

MIDF Research has projected that crude oil price to average at US$105 per barrel and crude palm oil at RM3,400 per tonne this year.

Affin Investment Bank Bhd economist Alan Tan said the local economy would be supported by private investments and consumption as well as a more synchronised external recovery in the 2H11.

“The US and EU will likely show slower growth in the first half but the global economy is expected to pick up in 2H11,” he said.

Affin quarterly GDP growth forecasts for Malaysia in 2011 include 3.9% for 1Q, 4.2% for 2Q, 5.5% for 3Q and 6.3% for 4Q."