The government announced the Economic Transformation Programme (ETP) to realise its ambition to turn the country into a high-income economy by 2020.Minister in the Prime Minister’s Department Senator Datuk Seri Idris Jala says the ETP will help Malaysia triple its gross national income (GNI) from RM660 billion (2009) to RM1.7 trillion in 2020.
This translates to an increase in per capita income from RM23,700 (US$6,700) to at least RM48,000 (US$15,000), meeting the World Bank’s high-income benchmark. To help achieve this, the government aims to sustain 6% GNI growth between 2011 and 2020.
The government is confident the private sector will be the primary driver for the push towards a high-income nation. A total over RM1.4 trillion is required for the duration of this economic push, with 92% of the funding expected to come from private sector investments, and public funding expected to take up the remainder.
Malaysian inflation rises 2.1% in August
In line with market expectations, Malaysia’s consumer price index (CPI) increased by 2.1% y-o-y in August for the sixth straight month, largely reflecting the carry-over effects of the cuts in subsidies on fuel-related products and sugar that took effect on July 16. This was higher than July’s 1.9% increase. Food prices remained elevated, rising by 3.1% in August, versus 2.9% in July, on still-firm domestic demand. Festive demand during Ramadan, as well as the Hari Raya Aidilfitri celebrations, should keep food inflation at high levels in September. The transport price index rose to 2.7% (2% in July) as the full impact of the fuel price hike kicked in.
Foreign reserves rise in SeptemberMalaysia’s foreign exchange reserves rose by US$650 million or RM2 billion in September to US$95.9 billion or RM313.3 billion as at Sept 15, compared with a marginal increase of US$150 million or RM500 million in August. This was likely driven by the repatriation of export proceeds and some inflow of foreign portfolio funds, which were offset partially by the payment of import bills. As it stands, foreign portfolio investment in fixed income paper rose by RM5.9 billion in July, compared with RM2.3 billion in June, after slowing down sharply to RM100 million in May. YTD, foreign exchange reserves have fallen by US$800 million. In ringgit terms, the reserves fell by RM18 billion after taking into account the revaluation loss due to the appreciation of the ringgit against major currencies. At the current level, the foreign exchange reserves are sufficient to finance 8.4 months of retained imports and cover 4.3 times the short-term external debt of the nation, compared with a high of 10 months of retained imports and 4.3 times short-term external debt cover as at end-February.
Inflation picks up in Singapore in August
Singapore’s consumer prices grew at a faster pace of 3.3% y-o-y in August, compared with 3.1% in July and a low of 0.2% in January. This was the fastest rate of increase in 20 months, indicating that price pressure is building up as economic growth picked up strongly in 1H2010. The pick-up in inflation was reflected in a faster increase in food prices, which inched up to 1.7% y-o-y in August, from 1.5% in July. This was made worse by a rebound in prices of clothing and footwear and faster increases in the costs of housing, education, healthcare and recreation services.
US home sales rebound but recovery remains weak
US existing home sales rebounded to increase by 7.6% m-o-m to an annual rate of 4.13 million units in August, after falling by a whopping 27% in July, the sharpest drop since data collection began in 1968. This was the first increase in four months but it remains to be seen whether the rebound is temporary. Nevertheless, it was an encouraging sign, especially following the end of the government’s tax incentive in April. The tax incentive offered certain buyers as much as US$8,000 in tax credit to sign a contract by April 30 and complete the contract by June 30. US lawmakers have since pushed the completion deadline to Sept 30. Y-o-y, existing home sales contracted by a smaller magnitude of 19% in August, compared with -25.3% in July. Despite the improvement, it was the second straight month of decline after showing positive growth for a year, pointing to a renewed weakness in home sales as the government’s support ended.
The Fed leaves rate unchanged
The US Federal Reserve left its federal funds rate at close to 0%. Its statement again promised that this rate would stay at “exceptionally low levels” for an “extended period.” The Fed also announced it would continue to make new purchases of Treasuries with the proceeds of its earlier investments. That policy was announced at its previous meeting last month.
US leading indicators point to expansion in economy
The US Conference Board’s index of leading indicators, which provides early signals on the direction of the economy over the next three to six months, grew at a faster pace of 0.3% m-o-m in August, after rising by 0.1% in July and compared with -0.2% in June. This was the second straight month of increase after a drop in June, suggesting that the US economy will likely continue to expand in the months ahead.
Eurozone’s August PMI falls
The eurozone’s preliminary purchasing manager index (PMI) for the manufacturing sector, released by Markit Economics in London, fell to 53.6 in September, from 55.1 in August and a high of 57.6 in April. This was the lowest level in seven months, indicating that the sector’s activities are weakening in line with a slowdown in the global economy.
Similarly, the PMI index for the services sector eased to 53.6 in September, from 55.9 in August and a high of 56.2 in May, indicating that the slowdown in the region’s services activities is catching up with manufacturing activities. As a result, the composite index for both manufacturing and service industries slackened to 53.8 in September, from 56.2 in August and a high of 57.3 in April. Economists say this means the region’s economic growth will likely slow down in 2H2010, after recording the fastest pace of growth in four years in 2Q, on account of a slowdown in exports and as the austerity measures by Europe’s highly indebted nations begin to be felt.
Industrial orders fell in July
The eurozone’s industrial orders contracted by 2.4% m-o-m in July, compared with 2.4% in June. This was the first decline in three months, indicating that industrial activities are likely to soften in the months ahead, in line with a slowdown in global economic activities. Industrial orders were dragged down by a drop in orders for intermediate and capital goods, which fell by 0.1% and 5.1% m-o-m respectively in July, compared with the corresponding rates of 0.1% and 3.8% in June. This suggests that the region’s exports and investment will likely slow down in the months ahead.
This article appeared in Corporate page of The Edge Malaysia, Issue 825, Sep 27-Oct 3, 2010
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