Malaysia’s GDP up 7.2pc, now equal to Singapore

Malaysia’s GDP up 7.2pc, now equal to Singapore

UPDATED @ 10:12:20 PM 18-02-2011

TMI By Lee Wei Lian

February 18, 2011

KUALA LUMPUR, Feb 18 — The Malaysian economy is now roughly the same size as Singapore’s after it expanded 7.2 per cent in 2010, half the rate of Singapore’s 14.5 per cent.
At today’s exchange rates, Malaysia edges Singapore by a whisker — US$239.96 billion (RM728.62 billion) compared to US$239.33 billion.

The resource rich nation was largely saved the blushes of being surpassed by the tiny city state in 2010 by the strength of the ringgit versus the US dollar when it appreciated by about 12 per cent over the last 12 months, the most of any Asian currency except for the Japanese yen.

The former 14th state’s growth has seen it catch up and now threaten to displace Malaysia from its long held its position as the third most valuable economy in the region behind Indonesia and Thailand.

The contest for third place will be equally tight this year with Malaysia projected to grow between 5 and 5.5 per cent in 2011 which is comparable to Singapore’s forecast of between 4 and 6 per cent.

The ringgit is expected to keep its upward trend this year, appreciating about 4.7 per cent according to Barclays Plc.

Since Malaysia and Singapore, two former British colonies, parted ways under acrimonious circumstances in 1965, the tiny island nation has surpassed its bigger neighbour in numerous global rankings such as universities, liveability and economic competitiveness.

Malaysia only managed to grow its per capita GDP 20 times from US$335 in 1965 to US$6,975 in 2009  compared with Singapore which grew its per capita GDP 71 times from US$512 in 1965 to US$36,537 in 2009, leading to widespread complaints that Malaysia’s economy has been badly mismanaged.

The Najib administration recently launched reforms in an attempt to make the economy more developed and competitive such as the Economic Transformation Programme (ETP) and the New Economic Model (NEM).

It is still too early to tell, however, how effective the reform attempts will be.

Bank Negara said today that higher private and public sector spending contributed to the expansion in domestic demand in Malaysia in the fourth quarter but that slower growth in the global economy had led to weaker external demand.

Domestic demand strengthened by 5.7 per cent in the fourth quarter due mostly to the strong expansion in private consumption and capital spending which saw private consumption increase by 6.5 per cent.

Public consumption however fell 0.3 per cent due to lower expenditure on supplies and services.

Inflation which has become a key concern increased by 2 per cent in the fourth quarter attributable mainly to higher price of food and non-alcoholic beverages which rose by 2.9 per cent and the removal of fuel subsidies by the Government which resulted in an upward adjustment of 5 sen/litre for RON95 petrol and diesel prices.

Malaysia’s trade surplus widened by RM3 billion to RM25.5 billion in the fourth quarter on the back of 3.7 per cent growth in exports while net inflows of foreign direct investment doubled to RM8.3 billion from RM4.4 billion in the third quarter.

Direct investment abroad by Malaysian companies meanwhile fell to RM3.2 billion from RM5.4 billion in the fourth quarter reflecting lower net extensions of inter-company loans to subsidiaries abroad.

AmResearch senior economist Manokaran Mottain told newswire Reuters that he expects government spending to pick up after June due to the implementation of the ETP with exports also recovering and private consumption remaining steady.