GDP Q2-Better than Expected!

The Malaysian economy contracted only 3.9 per cent in the second quarter of 2009. This was much better than market expectation of minus 5.1 per cent.

The smaller than expected contraction was a major improvement over the country's Q1 shrinkage of 6.2 per cent. With the latest numbers, the central bank summed up the economy retreated 5.1 per cent in the first half of the year.

Compared with other Asian economies, stimulus packages announced by Prime Minister Najib showed little sign of kicking in, with public consumption growing just one per cent.

Manokaran Mottain, an economist with the Arab-Malaysian Banking Group while saying that "it's an impressive performance, given that most of us thought it would be worse,” added the figure seems to suggest that the pump-priming stimulus money has not made the desired effect upon the economy.

The better than expected performance shows that Malaysia, like the rest of Asia, is exhibiting “green shoots”.Kuala Lumpur must certainly be worried about the economy's seeming lack of response to Najib's stimulus packages announced as far back as March.

The GDP figures, released by the central bank yesterday, showed the economy's better performance was driven largely by services (1.6 per cent) and construction (2.8 per cent).

Manufacturing was hit hardest, shrinking 14.5 per cent in Q2 after a Q1 decline of almost 18 per cent. This is not good.

Equally worrisome was the Malaysia 's export performance. Output shrank 17.3 per cent, while imports registered a 19.7 per cent correction. Bank Negara attributed this to “weak external demand”.

Surprisingly, the central bank provided no figures for investment — neither public nor private — although it did say total consumption grew 0.6 per cent in Q2, after contracting 0.2 per cent in Q1.

Inflation continued to fall. In July it dipped 2.4 per cent, allowing the central bank to keep interest rates low and conducive to growth. On Monday, the bank maintained its overnight policy rate at a historic low of 2 per cent. And with near-deflation persisting, it is likely to keep rates low until the second half of 2010.

“We expect a gradual recovery,” central bank governor Zeti Aziz told a news conference. The economic contraction in 2009 will be smaller than expected, she said without elaborating.

Any one for some more crystal ball gazing?