Economists had earlier anticipated that growth in the last quarter of 2014, which saw a steep drop in global oil prices, would be slower at 5% compared to the gross domestic product (GDP) of 5.6% recorded in the third quarter.
Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz, who called for an unscheduled press conference to announce the fourth-quarter economic growth yesterday, said she expected the Malaysian economy to remain on a steady growth path despite the uncertainty in the global economic environment.
She said this was due to the country’s diversified economic structure supported by strong fundamentals such as low inflation, favourable employment conditions, low external debt and ample international reserves. “Yes, of course, we are affected (by the drop in oil prices) but because we took steps to diversify our economy, diversify our exports, diversify the revenue base of the Government and so on, all this has paid off.
“Domestic demand is now the anchor and driver of growth. If we didn’t do that economic restructuring, our growth will be a lot lower. It would probably be like 2% or 3% or even less as a result of this,” she said, explaining that the press conference was held to address what she described as the misconception of the Malaysian economy being overly reliant on oil revenues.
The domestic demand was driven by strong growth in private-sector spending in the fourth quarter. Private investments grew 11.2%, up from a growth of 6.8% in the previous quarter, mainly due to capital spending in the manufacturing and services sectors.
Zeti said the manufacturing sector’s growth was supported mainly by export-oriented industries, particularly in the electrical and electronic clusters.
Surprisingly, the mining sector, on the other hand, posted a 9.6% year-on-year growth in the fourth quarter due to higher crude oil production. This is despite the decline in crude oil prices in the said quarter.
“Malaysia’s oil production increased by 13.6% year-on-year to 665,000 barrels per day during the quarter,” she said.
Moving forward, the central bank expects domestic demand to be the anchor of growth for the country. The lower fuel prices are expected to result in a higher disposable income of some RM7.5bil.
“We expect that the lower fuel prices will contribute to a higher disposable income of some RM7.5bil, which will provide some sustained growth. Meanwhile, the export performance could continue, but not at the strength that we expect,” she added.
On the household debt position, Zeti said loans growth to households grew at a slower pace of 9.9% in 2014 compared with 15% in 2010, while non-performing loans were low at 1.2% as a result of improved assessments of affordability.
She said that household debt, which currently stood at some 86% of GDP, would take quite a while to be brought down.
“Despite the outstanding debt, the loans are not going bad. Only 1.2% of total loans have gone bad. This means that all those borrowers have the ability and job security to pay back their loans,” Zeti said, adding, “The growth in personal loans has halved.”
Touching on the current account, she said it remained in surplus during the fourth quarter and was at about 4.8% of gross national income for 2014.
Zeti said the current account could narrow in 2015 due to the uncertain environment in the global economy. However, she added that there were improvements such as in the United States and United Kingdom economies, both of which were major trading partners of Malaysia, while China’s growth was stabilising in the 7% region.
On the outflow of funds that is impacting the ringgit, Zeti said that Malaysia was in a better position to manage the capital flows because it had greater buffers, a wider range of tools and increased flexibility. The key, she said, was to ensure that the volatility of the flows was contained and did not spill over to the real economy.