Malaysia: Growth moderates amid waning base effect
November 22, 2010
In the third quarter, gross domestic product (GDP) increased 5.3% over the same period last year, which came in well below the second quarter's 8.9% expansion and fell short of market expectations, which had the economy growing 5.9%. The deceleration partly reflects the waning of a favourable base effect, which boosted growth figures in the previous quarters (Q1: +10.1% year-on-year; Q2: +8.9% yoy). That said, the third quarter's slowdown was the result of developments in the domestic sector. In particular, government consumption swung from a 6.8% expansion in the second quarter to a 10.2% contraction in the third. Private consumption decelerated only moderately, expanding 7.1% (Q2: +7.9% yoy), while fixed investment grew 9.8%, down from the robust 12.9% increase tallied in the second quarter. Exports of goods and services decelerated from the second quarter's 13.8% expansion to a 6.6% increase in the third quarter. Imports increased 11.0%, which was just half the previous quarter's 21.9% expansion. As a result, the net contribution from the external sector to overall growth improved from minus 5.3 percentage points in the second quarter to minus 3.5 percentage points in the third quarter. At the sector level, the deceleration was broad-based, with all major sectors slowing over the previous quarter. The manufacturing sector, which accounts for nearly a quarter of total GDP, led the deceleration by slowing from a 16.0% expansion in the second quarter to a 7.5% increase in the third. Services decelerated as well to a 5.4% expansion (Q2: +7.3% yoy), while agriculture improved to a 2.7% increase (Q2: +2.4% yoy).