Will gravity-defying GDP numbers continue in Q3?

Thursday August 16, 2012
The Star

Making a Point – By Jagdev Singh Sidhu

BEATING expectations has become a bit of a habit for the economy in recent quarters.

Economic growth rose 5.4% in the second quarter of this year, higher than even the most optimistic estimate for the quarter, after expanding by 4.9% in the first quarter.

That sets the stage for the whole year economic growth, barring a calamitous collapse, to come in well within the official forecast of 4% to 5%.

What drove growth in this latest quarter has been the usual suspects. Private consumption which is what companies and people spend on grew 8.8% and gave no indication that it’s about to slow down.

Maybe the softer crude palm oil prices will affect overall consumption, but with the labour market virtually at full employment, people should continue to spend.

Cash handouts to the lower income group and the wage increase give’n to civil servants has helped lift consumer spending.

With over one million working adults getting a raise, and so many other Malaysians getting a cash handout from 1Malaysia people’s aid, a jump in consumption was bound to follow.

What gave the economy a boost despite softer exports was private sector investment. Investment by companies jumped by more than a quarter from a year ago to really give domestic demand a big push.

Another feather in the economy’s quiver for the second quarter was growth in construction. Riding on a 15.5% jump in the first quarter, construction activity leaped by 22.2% in the second.

Construction activity is a lot more pronounced now. Cranes have started to dot the skyline a bit and safety barriers have become more obvious as a result of work on Kuala Lumpur’s My Rapid Transit starts.

The way things are looking, expect construction activity, which has wide-reaching domestic linkages, to continue adding to domestic growth.

The smashing quarterly gross domestic product (GDP) numb er, however, should not be a reason for people to think that everything’s rosy and give themselves a contented pat on the back.

Economic rumblings from the Western developed countries have rubbed off in this part of the world and that has started to get some people worried just what the second half of the year will look like.

Expectations are that the second half will be worse off than the first.

Just how bad will depend on what happens locally and externally. China’s economy is slowing and growth in factory production for July was the slowest in three years.

A lot of Malaysia’s trade is with the second-largest economy in the world and as growth there slows, it will have an impact on South-East Asia and Malaysia.

Leading indicators for Malaysia are also pointing south although still in positive territory, indicating that the foot is easing off the accelerator of the domestic economy.

It will then be interesting to see if the gravity-defying GDP numbers for Malaysia so far this year will continue in the third quarter.

Acting business editor (features) Jagdev Singh Sidhu is happy the football season will kick off this weekend.

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