Malaysia: Prime Minister Finally Dissolves Parliament

Consensus Forecasts

Bank Negara Malaysia, the central bank, upgraded its growth projection for this year in its annual report last month. Real GDP growth is now expected to come in at around 5.0-6.0% on the back of solid domestic demand. This compares with a previous forecast of 4.5-5.5%, while stronger growth will see headline inflation pick up to 2.0-3.0% in 2013. Encouragingly, latest monthly data releases appear to support the brighter economic outlook. Industrial production, for example, advanced by 4.6% (y-o-y) in January following a 3.5% rise in December. The expansion was broad based, with manufacturing gaining 4.9%, mining up 2.4% and electricity output jumping by 9.8%. The country’s external performance was less upbeat however, as both exports and imports fell in February owing to the shorter number of working days and the festive holidays. Exports fell by 7.7% (y-o-y) and imports were down 4.4%. As a result, the trade surplus widened to RM8.21bn from RM3.27bn in January. Meanwhile, inflation rose to 1.5% (y-o-y) in February, up from 1.3% in January. The increase was mainly due to food inflation, which jumped by 3.3% (y-o-y) in February compared to 2.2% a month earlier. Base effects arising from the timing of the Chinese New Year holiday also contributed to the spike in prices. As base effects fade over the coming months, inflation is expected to see only a modest uptick and looks set to average just 2.2% for the whole of 2013.

Malaysia’s Prime Minister, Najib Razak, finally dissolved parliament on April 3, paving the way for a general election. An election date has yet to be set (must be held within 60 days of the dissolution of parliament), but is expected to be closely fought contest between the incumbent premier and the opposition leader Anwar Ibrahim.

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