Malaysia’s economy accelerated at an annual pace of 6.4 percent in the fourth quarter, beating expectations with the fastest growth since 2010 as domestic demand stayed robust ahead of elections that must be called by April.

The economy grew 5.6 percent in 2012, the top of the central bank’s target range, compared with 5.1 percent in 2011 as demand in the South-East Asian nation was lifted by heavy government

spending and resilient consumers.

Economists polled by Reuters had forecast fourth-quarter growth would accelerate to 5.5 percent from 5.2 percent in the previous three-month period, and had seen full-year growth at 5.3 percent.

“All sectors registered positive growth,” the Statistics Department said in a statement today.

“The services, manufacturing and construction sectors continued to be the key drivers in the supply side.”

Private sector investment surged 20.2 percent in the fourth quarter From the same period a year earlier, while public investment rose 11.1 percent - dipping after a 22.4 percent expansion in the previous quarter.

But analysts are uncertain if the spending spree will ease after the elections.        

Risks in second half?

Manufacturing output rose 5.8 percent in the period from a year earlier, up from 3.3 percent in the previous quarter, defying a sluggish export performance.

Exports, which normally account for about 60 percent of the South-East Asian economy, have suffered from the global economic slowdown and euro zone debt crisis, growing a mere 0.6 percent in 2012 compared to 2011.

As with many of its South-East Asian neighbours, robust domestic consumption and strong public spending in Malaysia have helped cushioned the blow from slowdowns in its major Western trading partners and China.

Investors attracted by the region’s economic resilience flocked to local stock and bond markets last year, helping boost Malaysia’s key share index 10 percent and the ringgit currency nearly 4 percent against the dollar.

But uncertainty over the upcoming elections have made foreign investors more cautious of late, with local stocks shedding shed 4 percent so far this year while some neighbouring bourses were hitting record highs.

Neighbouring Indonesia, Thailand and the Philippines have also posted solid economic growth data in recent weeks.

     

The Malaysian government, led by the ruling Barisan Nasional coalition, has upped spending on mega-infrastructure projects as part of its US$444 billion Economic Transformation Programme,

hoping to lure more investment.

The BN, which has been in power since 1957, suffered its worst election result in 2008 when it lost its two-third parliamentary majority for the first time. To shore up support, it has held off unpopular cuts to food and fuel subsidies and increased handouts to poor voters in the past year.

Prime Minister Najib Abdul Razak is expected to win the election, but it is expected to be close fought and a narrow victory could heighten political uncertainty.

However, strong government spending and a generous budget have added to strains on Malaysia's public finances. Some credit rating agencies and analysts have expressed concern about the government's ability to reduce its fiscal deficit and debt-to-GDP ratio, which has ballooned to be among Asia’s largest.

Price pressures are also widely expected to increase in the second half of the year, in line with an expected global economic recovery and as the new government gradually removes subsidies to cut the bloated budget deficit.     

Malaysia has enjoyed one of the lowest inflation rates in the region thanks to a long list of price-controlled essential items which range from sugar to cooking oil.

Data earlier today showed January’s inflation rate rose 1.3 percent from a year-earlier, edging up from near three-year lows in December.

Bank Negara kept its key interest rate unchanged at 3.00 percent in its first monetary policy decision of the year, as expected, saying that the current rate level was supportive of the economy while inflation remained contained.

- Reuters