BR1M may vindicate Najib Razak yet, says Singapore paper

BR1M not just a political tool after all? Or at least that's what Singapore Business Times' veteran journalist S. Jayasankaran seems to mean as he heaps praises on Najib Razak for the "astonishing" 2nd Q GDP growth. He's singled out the Malaysian PM's "giveaway" program (e.g. BR1M), which the Opposition charged was just a vote-buying ploy, for the huge boost in domestic demand. Jaya would understand how this works as Singapore has been doing the same for several years now, giving away money to its citizens in the name of "profit-sharing". A Malaysian citizen, Jaya thinks Najib should call for the general elections now rather than later. Perhaps Najib should ...

By S Jayasankaran

Domestic demand continues to be Malaysia’s growth story

Growth in the second quarter of 2012 surged by an astonishing 5.4 per cent from a year ago versus a revised 4.9 per cent in the previous quarter and beating all the street’s expectations of 4.3 per cent.

The Financial Times called it “gravity defying.” Such adjectives may not be misplaced as the whole world is struggling to adjust to difficult economic times. Indeed, Malaysia has outstripped its neighbours in the growth stakes, a rarity at any time.

What’s clear is that Prime Minister Najib Razak’s “giveaway” programme is working. Couple that to his Economic Transformation Programme and the results have been a revelation.  Granted that the former is an election kicker but the latter, which has been widely regarded with skepticism, may yet vindicate him.

The generous government hand-outs and stronger investment spending under the ETP has clearly helped to boost growth. Domestic demand increased by a whopping 13.8 per cent from 9.7 per cent in the previous quarter. Investment spending rose massively: 26.1 per cent from 16.1 per cent in the first quarter while government spending expanded by 9.4 per cent against 7.3 per cent in the previous quarter.

Unsurprisingly, exports were down, growing only 2.1 per cent from almost 3 per cent previously. But private spending more than made up for it.

Almost all sectors chipped in. Growth was led by construction (22.2 per cent versus15.5 per cent previously). Services grew by 6.3 per cent and, even, manufacturing expanded by 5.6 per cent.

Mining growth rebounded (2.3 per cent versus 0.3 per cent in the first quarter) on higher crude oil output, while only growth in the agriculture segment contracted ( minus 4.7 per cent) due to lower crude palm oil production.

Clearly, people were spending. That was supported by "firm labor market conditions, robust income growth and improved consumer sentiment", to quote the central bank.

Mr Najib has staked his electoral chances by spending and spending big. He’s given handouts to the poor and he’s raised civil service salaries while embarking on some of the most ambitious infrastructure programmes in the country’s history. It’s a risky bet as the rating agencies have been breathing down his neck. But it’s been so far so good with the deficit, and debt as a proportion to gross domestic product, declining as growth balloons.

Economists are raising Malaysia’s growth forecasts for the year. The Bank of America-Merrill Lynch raised its 2012 GDP forecast to 4.7 per cent (from 4.2 per cent) simply based on the country’s second quarter performance.

And the central bank seems quire sanguine about the whole thing. Bank Negara expects the strong support provided by domestic demand to be sustained going forward, "although downside risks emanating from external developments remain".

Inflation remains, at 1.4 per cent, the lowest in a long time. The trick for Mr Najib is to translate these “feel good” factors into realpolitik. That is, of course easier said than done, but there is talk that he may opt for a full term which means April next year.

But most people are tired of the incessant politicking. Perhaps the premier should wait no longer and call the general election sooner rather than later.