Malaysia Q3 GDP shrinks less than expected

KUALA LUMPUR, Nov 20 (Reuters) - Malaysia’s economy contracted by 1.2 percent in the third quarter from a year ago, much less than the 2 percent contraction forecast in a Reuters poll, due to booming domestic demand, signalling the last quarter of the trade-dependent Southeast Asian country’s recession.

Economists in a Reuters poll had forecast gross domestic product would drop 2 percent after a 3.9 percent decline in the second quarter.

Central bank Governor Zeti Akhtar Aziz told a press conference that the economy had now shown growth for two consecutive quarters, expanding by 5.7 percent in the third quarter from the second after 4.8 percent in the second from the prior quarter.

“What we are seeing is a tremendous improvement taking place,” Zeti told a press conference, although she said doing better than the full year forecast of a 3 percent economic contraction would depend on the still uncertain global economy.
Malaysia is Asia’s third-most trade dependent country with exports reaching more than 100% of gross domestic product.

Other export-oriented Asian economies, although out of recession, are still feeling the effects of uncertain demand from the U.S. and Europe. Some economists believe however that some amount of decoupling will take place as domestic demand picks up the slack from inconsistent trade numbers.

Malaysia is also Asia’s biggest net oil exporter and second-largest gas exporter and also has large commodity exports and the prices of both have fallen sharply from a year ago.

The government had said that it expects growth to pick up in the second half of 2009 with positive growth in the fourth quarter as a 67 billion ringgit package of government spending and loan guarantees spread over two years kicks in.

Malaysia also recorded its first net portfolio inflows in the third quarter of 2009 since the first quarter of 2008 with 8.8 billion Malaysian ringgit ($2.60 billion) of inflows.

That comes after five consecutive quarters of outflows of portfolio investment totalling 114.4 billion ringgit.

Net foreign direct investment remained anaemic however at just 2.1 billion ringgit in the third quarter despite a raft of economic reforms aimed at boosting Malaysia’s attractiveness as a place to invest.

Unlike countries such as Indonesia who are considering following Brazil’s move to slow rapid inflows, Malaysia is not planning any action, Zeti said.

“We have more mature and more developed financial markets now, more diversified, so they are able to absorb these kind of flows, without disruption, so we are not concerned at this point,” she said.

Malaysia famously spurned cash and advice from the International Monetary Fund during the 1997-1998 Asian financial crisis and slapped on capital controls, which it has since removed.