Malaysia’s growth unexpectedly accelerated to the fastest pace in six quarters on surging exports, adding scope for the central bank to raise interest rates further. The ringgit rose to a nine-month high.
Gross domestic product rose 6.4 percent in the three months through June from a year earlier, after climbing 6.2 percent in the first quarter, the central bank said in a statement in Kuala Lumpur today. The median in a Bloomberg News survey of 25 economists was for a 5.8 percent increase.
Malaysia was the first in Southeast Asia to raise its benchmark rate in 2014 as investment, private consumption and overseas orders for the nation’s goods sustained growth. Southeast Asia’s third-largest economy is outperforming its regional counterparts amid slowing expansions in Indonesia and Singapore last quarter.
“It’s one of the standouts so far, one of the few economies actually seeing growth picking up strongly,” said Krystal Tan, a Singapore-based analyst at Capital Economics Ltd. ’’This means that the central bank would have room to further normalize monetary policy.’’
The ringgit rose 0.6 percent to 3.1615 against the U.S. dollar as of 1:46 p.m. local time. It has strengthened about 3.6 percent this year, the second-best performer among 11 major Asian currencies tracked by Bloomberg. The FTSE Bursa Malaysia KLCI Index of shares erased losses and climbed 0.1 percent.
GDP expansion this year will probably exceed the central bank’s forecast range of 4.5 percent to 5.5 percent, Governor Zeti Akhtar Aziz said today. The government will announce a new growth forecast during its budget, she said. Barclays Plc and Australia & New Zealand Banking Group Ltd.’s analysts raised their 2014 growth estimates for Malaysia after today’s data.
Indonesia’s growth eased to the slowest since 2009 last quarter, while Singapore’s expansion was the least in more than a year. Thailand may say its economy swung to an expansion of 0.1 percent in the second quarter from a year ago, according to the median of 15 estimates before the data is released Aug. 18.
The government is spurring investment by making it simpler for companies to operate in the country, with Malaysia moving up six ranks in the World Bank’s latest index of ease of doing business. Prime Minister Najib Razak wants to increase the share of tourism, health care and other services to 65 percent of GDP by 2020 from 55.2 percent in 2013.
Exports (MAETEYOY) climbed 8.8 percent in the second quarter from a year earlier, while private consumption growth was 6.5 percent in the same period.
Services rose 6 percent in the three months through June from a year earlier after climbing 6.6 percent in the first quarter, today’s report showed. Manufacturing grew 7.3 percent.
“Leading indicators suggest that private sector activity will remain as the key driver of growth,” the central bank said in a statement today. “Exports will continue to benefit from the recovery in the advanced economies and from regional demand. Going forward, the Malaysian economy is expected to remain on a steady growth path.”
Bank Negara raised its benchmark by 25 basis points in July, and said future moves will depend on the balance of risks for growth and inflation. Malaysian interest-rate swaps are pricing in a 50 basis-point increase in borrowing costs in the next year, data compiled by Bloomberg show.
“Given robust growth dynamics, lingering inflation pressures and a preemptive move to guard against the build-up of financial imbalances, we think Bank Negara may pursue another” rate increase in September, Julia Goh, an economist at CIMB Group Holdings Bhd., said before the announcement.
The central bank forecasts price gains of 3 percent to 4 percent in 2014, and Zeti said today inflation is expected to quicken temporarily next year before stabilizing in 2016. The government will introduce a goods and services tax in April.
“The government’s firm stance on the subsidy rationalization program, and the future GST would drive further inflationary pressures,” said Manokaran Mottain, chief economist at Alliance Bank Malaysia Bhd. in Kuala Lumpur.
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