Economic Growth of Malaysia

%-6% growth seen next year

Private sector takes over as growth driver
THE Malaysian economy is projected to grow by between 5% and 6% in 2011, spurred by domestic demand as the private sector takes over as the driver of growth.
Private investment activity, which turned positive in 2010, is envisaged to contribute significantly to economic growth.
The idea of the private sector leading growth stems from the start of 52 private finance initiatives (PFI) over the 10th Malaysia Plan (10MP) period as well as the implementation of private sector projects under the National Key Economic Areas (NKEAs).
Domestic demand is expected to grow by 5.8% in 2011 compared with 6.9% in 2010 which would be supported by greater dynamism of the private sector with expenditure accelerating by 7%.
With various measures taken to enhance competitiveness and productivity, growth will be driven by private investment which is seen to be expanding by 10.2% in 2011 compared with 15.2% in 2010.
Aiding growth in private investment would also be public-private partnerships as well as the RM20bil Facilitation Fund under the 10MP.
Low unemployment and growth in household income are expected to boost private consumption, while higher commodity prices, which the country is relying more on these days, would spur rural household spending next year. .
Private consumption is expected to grow by 6.3% in 2011 from 6.7% last year.
As the private sector activity ramps up, the public sector expenditure is expected to moderate, which is in line with the policy of slowly cutting back the fiscal deficit.
Public expenditure is expected to grow at a slower pace of 2.8% from 3.8% in 2010. Public investment is anticipated to expand slightly by 0.6% from 8.3% in 2010 and public consumption by 4.6% from 0.2% in 2010.
Positive contribution to the economy is also anticipated from the supply side of the economy as all sectors of the economy is projected to show growth with the services sector remaining as the biggest contributor to GDP.
In 2011, the services sector is envisaged to expand by 5.3%, compared with 6.5% in 2010, and growth in the services sector will be supported by the steady domestic economy and trade-related activities.
All sub-sectors of the services sector is expected to grow and that broad services sector would get a lift from continued expansion in wholesale and retail trade, communications as well as the finance and insurance sub-sectors.
In terms of contribution to GDP, the services sector is expected to account for 57.3% in 2011.
The services sector would also get a boost from the roll-out of programmes and initiatives under the seven services-related NKEAs, namely financial, wholesale and retail, information and communications technology, tourism, health, education and business services.
The manufacturing sector is also expected to expand in line with strong investment and consumption activities as the value-added of the sector is projected to grow by 6.7% in 2011 compared with 10.8% last year.
Intra-regional trade is expected to support export-oriented industries and the E&E and M&E sub-sectors are envisaged to lead growth.
Domestic-oriented industries are expected to expand in line with resilient consumer spending and sustained business confidence.
The outlook for the construction-related materials sub-sector is rosy as the civil-engineering segment is expected to benefit from various infrastructure projects outlined in the 10MP.
Higher prices and output of commodities is expected to aid the agriculture sector’s growth of 4.5% in 2011 compared with 3.4% last year.
Production of crude palm oil (CPO) is estimated to increase by 3.4% to 18.4 million tonnes from a 1.3% increase in output to 17.8 million tonnes in 2010 due to higher fresh fruit bunch yields as more plantation acreages matured especially in Sabah and Sarawak.
The expected higher oil extraction rate of 20.7%, versus 20.4% in 2010, is also exppected to contribute the strong production of CPO.
Production of rubber is projected to increase by 8.5% to 1.02 million tonnes from a 9.7% increase to 940,000 tonnes in 2010 as firm rubber prices will encourage tapping among the smallholders.
The non-commodity sub-sector, mainly livestock and fishing would benefit from ongoing high-impact projects.
The focus on high-value agriculture activities during the 10MP period such as swiftlet farming, acquaculture, ornamental fish, herbs and species as well as downstream activities for palm oil and rubber is expected to further spur growth in agriculture.
Higher natural gas production is expected to fuel the mining sector’s growth of 2.9% in 2011 compared with a 1% growth in 2010.
Natural gas output is expected to increase by 6.1% in 2011 compared with a 5.25 increase last year on account of robust performance of domestic petrochemical industries as well as higher global demand particularly from China and India.
In contrast, production of crude oil is projected to decline to 1.3% to 633,100 barrels per day from 641,400 barrels per day in 2010.
The decline is due to scheduled plant maintainance activities and implementation of the reservoir management plan by Petronas to sustain long-term crude oil production.
The construction sector is expected to expand by 4.4% in 2011 from 4.9% in 2010 and growth in the sector will be supported by ongoing projects such as KLIA 2, the Second Penang Bridge, SKVE Package 3, Sabah-Sarawak gas Pipeline and the LRT extensions.
In addition, growth would be supported by development projects in the five growth corridors as well as the implementation of new projects under the 10MP.
The residential sub-sector is envisaged to recover with developers more-than-ready to launch new projects in tandem with better buying sentiment and improved economic conditions.
As the economy expands, national income is expected to grow by 8.2% in 2011 from 12.8% in 2010 and the savings-investment gap is anticipated to register a surplus of RM114.2bil, accounting for 14.2% of gross national income (GNI) in 2011 compared with RM103.8bil or 13.8% in 2010.
The favourable position is attributed to higher gross national savings at 35.7% of GNI, expanding 8.5% to RM289.2bil with the private sector remaining as the largest contributor.
Total investment expenditure, including change of stocks, is expected to increase to RM175bil, contributing 21.6% to GNI compared with RM162.8bil or 21.7% of GNI in 2010.
The surplus in the national resource position provides ample liquidity in the financial system to finance domestic economic activities.
In terms of exports and imports, Malaysia’s external position is expected to strengthen in 2011 and the balance of payments will remain strong supported by higher current account surplus and improved net outflow in the financial account.
Receipts of the goods account are projected to expand 9.5% to RM707.4bil from a growth of 16.6% or RM646.1bil in 2010, while gross payments are envisaged to increase 9.5% to RM547.8bil from a growth of 21.3% to RM500.2bil last year.
The performance of the services account is expected to remain stable at RM500mil, which was the same amount in 2010, following an anticipated higher net travel receipts of RM34.4bil in 2011 compared with RM32.8bil in 2010, which would offset the deficit in the other services account.
In contrast, net outflow of the income account is projected to register RM27.2bil from RM25.1bil in 2010 as foreign multinationals in Malaysia continue to repatriate accrued earnings. In addition, the net outflow in the current transfers account is estimated at RM18.8bil from RM17.4bil in 2010.
However, the surplus in the current account is sufficient to offset the net outflows in the income and current transfers accounts.
Hence, the current account is projected to record a higher surplus for the 14th consecutive year amounting to RM114.2bil or 14.1% of GNI compared with RM103.8bil or 13.8% of GNI in 2010.