Is it all 'doom and gloom' for Malaysia?

Third quarter GDP will be announced today and the headline growth figure is
expected to report a 5.6% YoY expansion, up from 4.0% in the previous quarter. The
domestic engine will remain the key driver of the economy while underlying demand is
holding up on the external front compared to the previous quarter.

Essentially, export performance has continued to surprise on the upside on commodity
exports. Headline export growth recorded 11.4% in 3Q11, up from 8.8% in the previous
quarter. As a result, industrial production growth bounced from a contraction of 1.5%
to average 1.9% growth in the same period. So while the external outlook may not be
glowing, it is not altogether doom and gloom given the current economic tumult in
Europe and slowdown in global demand.

Plainly, pockets of uncertainty remain on the external front but the domestic engines of
the economy are not showing any sign of stalling. Domestic consumption is expected to
remain robust while investment will be the key driver of growth in 3Q11 and going
forward. The healthy pipeline of development projects will continue to propel the
economy. And that’s probably the reason why Bank Negara has held back against a
premature easing in monetary policy last Friday and maintains the policy rate at the
current level of 3.00% despite some market talk of the possibility of rate cuts given the
current global uncertainties.

In fact, growth outlook for Malaysia is expected to improve gradually in the coming
quarters on the back of a resilient support from the domestic segments of the economy.
In our opinion, Malaysia is unlikely to experience a sharp deceleration in growth
momentum or a technical recession in the medium term. The third quarter GDP growth
figures due to announce will testify to that.