News – Strong growth sustainable for now, say economists

GDP is a measure of economic output, and not economic growth. You can blow up a city and rebuild it, which creates output, but does nothing for growth. In fact, this is precisely what wars and natural disasters do. They destroy wealth that must be replaced, hence boosting output in the short run. However, the net effect is that there has been zero economic growth, only replacement of the lost wealthEconomic growth is an increase in real wealth, not a temporary increase in output.

 

However, Lee Heng Guie, economist at CIMB Research warned in a report that “external headwinds still warrant caution as they remain hurdles to Malaysia’s export growth. In addition, domestic consumption boosting catalysts such as cash handouts will fade in 2H12.”

Moreover, potential hurdles such as the ongoing uncertainty surrounding the electronics and electrical sector recovery, the slowing Chinese economy and the likelihood of sub-par commodity export earnings could affect net trade earnings for the country.

The relatively high base effect — Malaysia recorded growth of 5.5% in 2H11 — will also weigh down on the year-on-year growth comparison, he added. Nevertheless, CIMB

Research upgraded its GDP forecast for 2012 from 3.8% to 5%.

The 5.4% growth in 2Q was driven by stronger domestic demand and was an increase from 4.3% in the same quarter last year.

Domestic consumption may take a dive as boosting catalysts such as
cash handouts starts fade.

GDP for 1Q was also revised upward to 4.9% from 4.7% previously.

Inflation for July came in at 1.4%, the lowest in more than two years.

When asked if inflation will stay muted in the months ahead, Tang said he doubts it, explaining that inflation has been low mainly due to the fact that Pamandu’s subsidy rationalisation programme (SRP) has not been implemented as scheduled.

“This goes back to the government wanting to keep the feel good factor in the lead up to the elections,” he said, adding that funds generated from the SRP could be better utilised to accelerate infrastructure and ETP projects.

 

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