developments in the first quarter of 2004 · 2014-12-10 · quarterly bulletin first quarter 2004 7...

Quarterly BulletinFirst Quarter 2004

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International Economic Environment

The global economic environmentimproved further in the first quarter, led by theUnited States (US) and supported by astrong revival of growth in Japan and robusteconomic expansion in emerging Asia,especially the People's Republic of China (P.R. China).

US economic expansion wassustained at a strong pace of 4.2% in the firstquarter (4Q '03: 4.1%), driven by consumption,investment and inventory re-building. Strongergrowth was, however, accompanied byheightened inflationary expectations in some ofthe major countries amidst rising energyprices. In the euro area, weak consumerspending and subdued sentiment continued toconstrain growth. Meanwhile, recovery in the

DEVELOPMENTS IN THE FIRST QUARTER OF 2004

Japanese economy broadened as privateconsumption strengthened due to sustainedcapital expenditure and exports, as well asimproved labour market conditions. Globalequity markets during the quarter remainedbuoyant on improving global outlook, highercorporate earnings and positive businessexpectations. Borrowing costs remained low,strongly supporting the revival in the globalinvestment cycle. The forward momentum ofthe global economic expansion is expected tohinge on further strengthening of businessinvestment, the ongoing rebalancing of growthbetween the US, Japan, the other majorindustrial and Asian regional economies andthe reactions of businesses and consumers tothe expectations of increases in US interestrates.

In the Asian region, growth gatheredmomentum with countries recording morerobust growth ranging between 5 - 9%. Growthwas supported by rising intra-regional trade,strong upturn in global electronics and pick upin domestic demand, particularly from higherprivate investment activities and risingconsumer spending in most parts of theregion. Growth was the strongest in P.R.China, raising some concerns of overheatingin the economy. Consequently, P.R. China hasundertaken measures to curb excessiveinvestment in selected sectors and industriesthrough raising equity requirements forinvestment and tightening monetary policyaimed at controlling credit expansion. In

Strong global growth in major countries andregional economies


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Singapore, concerns on inflation, as growthprospects have strengthened significantly,prompting the authorities to undertake pre-emptive measures to allow for a modest andgradual appreciation of the Singaporean dollarexchange rate.

elections. In contrast, the Taiwanese dollar andKorean won appreciated markedly during thequarter due to large inflows as well as strongeryen gains in March. Similarly, the Singaporedollar also gained from its positive link with theyen while the Thai baht appreciated due tocontinued foreign equity inflows. Thestrengthening of the US dollar since April,following increased expectations of higherinterest rates in US, led to an across-the-board depreciation of the regional currencies,most notably the Korean won and Thai baht.

Developments in the Malaysian Economy

Robust growth in major sectors

The inflation environment remainedbenign in most regional countries despiteconsumer prices edging upwards followinghigher energy and raw material prices. InChinese Taipei, deflationary pressures turnedaround as consumer prices gained 0.5%following stronger domestic demandconditions and higher food and petroleumprices. Reflecting ample liquidity conditions,interest rates in most regional countries haveremained unchanged.

In the foreign exchange market, theweakness of the US dollar was contained byexpectations of higher interest rates andstronger growth prospects in the US.Meanwhile, regional currencies closed mixedagainst the US dollar. The depreciation of theIndonesian rupiah and the Philippine pesoreflected mainly dollar demand for debt andimport payments by the corporate sector anduncertainties ahead of the presidential

On the supply side, growth was broadbased, led mainly by the manufacturing andservices sectors and augmented by expansionin all sectors. Benefiting from the improvedexternal environment, the manufacturingsector continued to exert a strong positiveimpulse to growth, contributing 3.8 percentagepoints to GDP. The services sectorstrengthened significantly, reflecting broad-based expansion across all sub-sectors.


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Despite the seasonally low production periodfor some of the major agriculture crops, theprimary commodity sector performedfavourably during the quarter. Higher growth inthe agriculture and mining sectors was alsosupported by commodity prices beingsustained at a high level.

Sustained rapid expansion in themanufacturing sector

Growth in the manufacturing sectorcontinued to expand at a rapid pace of 12.5%in the first quarter of 2004 (4Q 2003: 12.2%),underpinned by the pick-up in exports andsustained domestic demand. The expansionwas supported mainly by stronger growth inthe export-oriented industries (19.4%; 17.7% in4Q) and growth in the domestic-orientedindustries (6.2%; 8.8% in 4Q). Despitecapacity expansion in several industries, theoverall capacity utilisation rate in themanufacturing sector continued to remain highat 82% (4Q 2003: 82%), with the export- anddomestic-oriented industries operating at 86%and 75% respectively (4Q 2003: 88% and 74%respectively).

The stronger performance of theexport-oriented industries continued to bedriven by higher output in the semiconductors(33.3%), rubber products (30.6%) andchemical products (17%) industries. Growth inthe semiconductor industry was supportedmainly by robust global demand arising fromhigher corporate spending on informationtechnology products and the rapid growth inthe wireless products segment. The stronggrowth in the electronics sector had a positiveimpact on the chemical industry with strongdemand for plastic-based products as well asstronger domestic demand for industrialgases. Higher output was also recorded in therubber products industry due largely toincreased export demand for rubber gloves.


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Growth in the domestic-orientedindustries was supported mainly byexpansion in the fabricated metal, food andiron and steel products industries arising fromhigher domestic and external demand.Meanwhile, production of transport equipmentcontinued to remain subdued, dampenedmainly by the soft demand for passenger cars,especially in the early part of the year.

Services sector strengthened further

Growth in the services sectorstrengthened significantly to 6.2% in the firstquarter (4Q 2003: 4.7%), with the major sub-sectors recording higher growth. Growth inthe wholesale and retail trade, restaurants andhotels sub-sector was supported mainly by theimproved consumer sentiment and significantincrease in tourist arrivals during the quarter.Tourist arrivals reached a record high level ofclose to 4 million during the quarter. Touristarrivals from Singapore rose significantly by66.3%, while arrivals from other countrieswas 9.8% higher. Benefiting from the strongtourist arrivals and trade activity during thequarter, the growth in air passenger traffic inboth domestic and international segments,and the sea transportation and port activitieswere robust. The strong growth in thetelecommunication sector was led by themobile segment amidst the increasedsubscriber base and international calls as wellas wider usage of new applications.Thesefactors contributed to the strong growth in thetransport, storage and communication sub-sector.

The finance, insurance, real estate andbusiness services sub-sector picked up

sharply, benefiting from higher loan growth,reinforced by continued robust performance inthe insurance sub-sector as well as strongerstock market and real estate activity.Increased demand for electricity, particularlyfrom the commercial and industrial sectors,underpinned growth in the utilities sub-sector.


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Favourable performance of the primarycommodity sector amidst firm prices

Production in both the agriculture andmining sectors expanded further during thequarter. Despite the seasonally lowproduction period for rubber and oil palm inthe first quarter, the agriculture sectorexpanded by 3.2%, as strong prices providedthe incentive for greater intensity of inputs toinduce higher crop output. Growth was alsosupported by higher production of otheragriculture activities such as fisheries andlivestock. Meanwhile, growth in the miningsector picked up to 5.6%, driven mainly byhigher crude oil production and reinforced bysustained growth in output of natural gas.

In the agriculture sector, growth inproduction of crude palm oil moderated to2.5% (4Q 2003: 5.4%), reflecting seasonallows as well as the downcycle in yieldsfollowing several quarters of strongperformance in 2003. The average monthlycrude palm oil output fell below 1 milliontonnes (0.89 million tonnes; 4Q: 1.13 milliontonnes) during the quarter due mainly tomarkedly lower yields of fresh fruit bunchesof 3.69 tonnes per mature hectare comparedwith 4.74 tonnes in the 4Q of 2003. Incontrast, rubber production expandedsignificantly despite the wintering period inthe months of February and March, whichtypically reduces latex yields. The higherproduction during the quarter was due mainlyto continued active tapping, especiallyamong the rubber smallholders, as rubberprices remained remunerative, averaging476 sen per kilogram (SMR 20; 4Q 2003:485 sen per kilogram).

Growth in the mining sector rose to5.6%, driven mainly by higher production ofcrude oil (including condensates) as well ascontinued increases in natural gas output.During the quarter, production of crude oil(including condensates) rose by 8% toaverage 772,800 barrels per day, supported bystrong external demand (8.1%), particularlyfrom major buyers in the region. Meanwhile,natural gas production continued to increaseby 2.3% due to the expansion in productioncapacity with the coming onstream of the new


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MNLG plant and several new gas fields in2003. Growth was also supported by higherdemand for LNG, particularly from majorbuyers, namely, Japan and Korea.

the ongoing fiscal consolidation. In the non-residential sub-sector where activity hadremained subdued over several years, someimprovement was seen during the quarter asindicated by the increase in the number ofcommercial property transactions as well as arise in the occupancy rate for commercial space.

During the quarter, activity in theconstruction sector was also partly affected bythe temporary shortage of steel bars, which ledto delays in some projects, particularly in the civilengineering sub-sector. To address the situation,the Government has implemented severalmeasures, including a six-month relaxation onimports of steel bars and billets as well asstricter control on exports of steel, effective 25February 2004. In addition, the Governmentrevised upwards the ceiling price of steel barsand billets in April by 28 - 45%. These measuresare expected to ease the supply shortage andenable construction activities to normalise.

Residential sub-sector supported growthin the construction sector

The construction sector expanded by0.6% during the first quarter (4Q 2003: 2.7%),supported mainly by growth in the residentialsub-sector. Demand for residential propertyremained strong as the low interest rates werecomplemented by attractive housing loanpackages as well as incentives provided underthe Economic Package. These incentiveswould remain until 31 May 2004. Activity in thecivil engineering sub-sector, however, wassubdued due to completion of several largeinfrastructure projects in 2003 and lowerFederal Government expenditure in line with

Domestic demand expanded further, led bythe private sector

Domestic demand expanded further inthe first quarter of 2004. Growth was led by the


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private sector as the increase in public sectorexpenditure moderated in line with the fiscalconsolidation stance. Growth in private sectorexpenditure was driven by both stronghousehold consumption and the strengtheningof private investment activities.

Private consumption growthremained robust in the first quarter (8.4%, 4Q2003: 8.6%), in line with the increase inconsumer confidence. The propensity toconsume was supported by the sustainedincrease in disposable incomes due tocontinued firm commodity prices, high exportearnings, and the general improvement inbusiness conditions; the low interest rateenvironment, easy access to financing, as wellas stable job market. The pick-up in theperformance of the stock market during thequarter also exerted a positive wealth effect onconsumers. Attractive promotions for thefestive celebration and Mega Sales had alsoencouraged household spending. The higherfirst quarter Consumer Sentiments Index ofthe MIER (117.5 points, 4Q 2003: 115.5 points)showed that consumers were more optimistic

on job prospects and income level. Majorconsumption indicators such as imports ofconsumption goods, loans disbursed tohouseholds and consumer spending on creditcards pointed to continued strong expansion inprivate consumption during the first quarter.Meanwhile, public consumption continued toincrease, albeit moderately, by 9.2% (4Q 2003:12.2%) due to higher expenditures onemoluments and supplies and services.

Growth in gross fixed capitalformation remained positive (3.5%, 4Q 2003:3.6%) in the first quarter, with the pace ofprivate sector capital spending gainingmomentum. Strong domestic investment wassupported by continued inflows of new foreigndirect investment and reinvestment.Investment in machinery and equipment andcapacity expansion continued to strengthen asbusiness sentiment improved further andcapacity utilisation remained high. Improvedbusiness sentiment in the private sector wasreflected in the MIER Business ConditionsIndex, which rose by 2.1 points to 112 points inthe first quarter (4Q 2003: 109.9 points) as aresult of rising sales, higher export and localorders as well as increasing production


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activities. In addition, positive growthregistered by indicators such as loansdisbursed to businesses, imports of capitalgoods and sales of commercial vehiclesprovide further corroborative evidence thatinvestment activities had increased in thequarter under review. Public sectorinvestment declined as reflected in the lowerdevelopment expenditure of the FederalGovernment during the quarter (-38%). Thebulk of the development expenditure wasdisbursed to education and training, health,transportation infrastructure, and agriculture. household equipment. The slower increase in

the prices of food was mainly due to the moremoderate increases in the price of food takenat home and the decline in the prices of fruits.

Labour market conditions remained stable.

Labour market conditions remainedstable as reflected in the MIER employmentindex. The labour market continued to besupported by higher growth in productivity. Inthe manufacturing sector, labour productivity,as measured by real sales value of productsper employee rose by 8.9% during the firstInflation remained low

While domestic demand strengthenedfurther, inflation continued to remain low duringthe first quarter of 2004. Adequate supply anda competitive environment restrained priceincrease. The annual rate of inflation, asmeasured by the change in the ConsumerPrice Index (CPI, 2000=100), was slightlylower at 1% in the first quarter (1.2% in 4Q2003). This was due mainly to a slowerincrease in the prices of food, gross rent, fueland power, transport and communications aswell as a continued decline in the prices ofclothing and footwear, as well as furniture and


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quarter, exceeding the 2.3% increase in realwage per employee. Reflecting the prevailingstable conditions, vacancies as reported to theauthorities during the quarter outpacedretrenchment (7,850 positions and 4,463persons respectively).

Both exports and imports recordedstronger growth

Consistent with expansion ininvestments, the trade surplus while remaininglarge at RM18.6 billion, narrowed from RM19.9billion in the fourth quarter of 2003. While grossexports expanded by 16.6%, gross importsincreased at a stronger pace of 23.4%.

Gross exports expanded due tostronger growth in exports of manufacturedgoods and sustained expansion in exports ofagriculture commodities, while receipts fromminerals grew at a more moderate pace.During the quarter, export performance wasdriven mainly by higher export volume (14.6%)as export prices remained almost unchanged(0.1%). In tandem with a more favourableexternal environment, exports of manufacturedgoods continued to expand at a double-digitrate of 16.3% (4Q 2003: 14.1%). Thefavourable performance was attributed mainlyto strong offtake of electronics and electricalproducts, chemicals and metal products.Electronics exports benefited from improvedglobal demand, particularly from the US andthe Asia-Pacific region. Higher exports ofchemicals and metal products were drivenlargely by increased demand from the regionalcountries and, to some extent, higher exportprices. Other major exports of manufacturedgoods, namely textiles, wood products, rubber

products, petroleum products, and furnitureand parts, also expanded strongly. Overall, theincrease in manufacturing exports wasattributed entirely to higher volume (15.7%) asprices declined during the quarter (-1.1%).

Exports receipts from agriculturecommodities expanded by 13.7% (4Q 2003:14.8%), attributable to higher export earningsof palm oil, rubber and sawn timber. Palm oilexports rose by 10.7%, underpinned by higherprices and export volume. Palm oil pricestrended higher to average RM1,764 per tonneduring the quarter following tight globalsupplies of edible oils, particularly soybean oil,which is palm oil's closest substitute. AlthoughMalaysia's exports of palm oil to India, one ofMalaysia's largest buyers, was lower due to itsbumper oilseed harvest, purchases by othermajor buyers, namely China, the EuropeanUnion and the Middle East, remained strong,increasing by between 18 to 33%.

Export receipts from mineralsexpanded by 15.9% (4Q 2003: 26.1%),contributed by increased earnings from bothcrude oil and LNG. During the quarter,Malaysian crude oil fetched higher prices,


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averaging US$34.07 per barrel, as sentimentsin the international oil markets were influencedby geopolitical concerns. Demand was mainlyfrom the Asian countries and Australia, whichaccounted for about 80% of the total exportvolume. Meanwhile, earnings from LNGexports increased by 15.6%, due entirely tohigher offtake by the major buyers, namelyJapan and Korea, while export prices declinedduring the quarter.

and electrical products. Hence, intermediateimports, which are mainly inputs for theproduction of manufactured exports, grew by22.6%. Inputs which recorded significantincreases included industrial supplies such asmetals and metal products, and chemicals.Higher imports of intermediate goods reflectedlargely growth in imports of parts andaccessories of capital goods (except transportequipment) comprising mainly electronics andparts and accessories of telecommunicationsequipment.

Another notable feature was thesignificant growth of 23.4% in capital importssignalling the stronger revival of growth ininvestment activity. Capital imports excludinglumpy import items, grew by 11.1%. Theincrease in imports for capacity expansionoccurred in the manufacturing and servicessectors as evidenced by the increase in importsof machinery for the manufacturing sector,office equipment and generators, turbines andelectric motors. Increased exploration anddownstream activities in the oil and gas industryin the wake of high prices for petroleum led tohigher imports of construction and miningequipment. Increasing external demand forcommodity exports and fleet expansion toservice new markets also induced the increasein deliveries of ships and aircraft in the firstquarter. Consonant with sustained privateconsumer spending and higher demand owingto festivities, imports of consumption goodsincreased by 14.3%. Accordingly, imports ofprimary and processed materials used for thefood and beverages industry registered anincrease of 19.6% during the quarter. Similarly,imports of consumer goods were robust,increasing by 11.6%.

The trade pattern continues to shifttowards markets in the region. The impetus tosustained growth in exports to regionalcountries (excluding Japan) stemmed from thestrong export growth to the People's Republicof China and Korea. In the wake of theimprovement in economic performance of theEuropean Union (EU) countries, exports to EUexpanded while exports to the United Statescontinued to grow, reflecting growth in exportsof electrical and electronic products.

Gross imports grew by 23.4%, thehighest growth since the third quarter of 2000.Import growth was spurred by the strongergrowth in production and exports of electronic


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Record high level of tourist arrivals

Tourist arrivals increased by 38.4% to 4million in the first quarter of 2004, the highestrecorded historically for quarterly arrivals. Thesurge in tourist arrivals was contributed byvisitors from Singapore, Thailand andP.R. China, which increased by 66.3%, 32.9%and 15.9% respectively. Visitors from ASEANcountries accounted for 79.4% of touristarrivals. Higher arrivals was reflective of theimproved economic performance, particularlyof regional countries, greater connectivity withthe increase in flights, restoration of flightsfrom Europe by a European carrier as well aspromotional fares by no-frills airlines.

Larger inflows of portfolio investment

On a cash basis, gross inflows offunds for long-term investments (FDI) werehigher than the corresponding period in 2003,amounting to RM3.4 billion. The bulk of the FDIinflows were channelled mainly into theservices sector, particularly the business andsupport services and wholesale and retailtrade sub-sectors. The manufacturing sector,in particular the electrical and electronics andpetroleum-related manufacturing activities,


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continued to receive large inflows of FDI. Afteradjusting for outflows due mainly to loanrepayment to related companies, FDI recordeda net inflow of RM0.6 billion.

Gross outflows for overseasinvestment remained stable at RM2 billion. Thebulk of the investments were effected bycompanies in the oil and gas sector. Therewere also significant investments bycompanies in the manufacturing sector,particularly from the petroleum-relatedmanufacturing and electrical and electronicsindustries, as well as the services sector.Meanwhile, investments by companies in theconstruction industry were marginally higher,following the successful bidding of largeprojects, particularly in India. Overseasinvestment, after adjusting for inflows fromrepayment of inter-company loans fromabroad, recorded a marginally lower netoutflow of RM1 billion.

Portfolio investment recorded a largenet inflow of RM16.3 billion, reflecting improvedinvestor sentiments and continued activeforeign participation in the stock marketfollowing announcements of better outlook forthe Malaysian economy.

External debt declined further

Malaysia's total external debt declinedfurther to RM184.6 billion or US$48.6 billion asat end-March 2004 (4Q 2003: RM186.1 billion),equivalent to 46.9% of GNP. The medium andlong-term external debt declined by 1.9% toRM149.8 billion or US$39.4 billion (4Q 2003:RM152.6 billion), reflecting net repayments ofexternal loans by both the public sector,

particularly the non-financial public enterprises(NFPEs) and private sector. In the firstquarter, the drawdown of external loans wassignificantly lower (+RM0.3 billion; 4Q 2003:+RM2.2 billion) with no new borrowing by thepublic sector. In the private sector,repayments were effected mainly byinvestment holding companies and companiesoperating in the manufacturing sector.

The total short-term external debtincreased slightly to RM34.9 billion or US$9.2billion (4Q 2003: RM33.5 billion) due mainly toincrease in short-term debt of the bankingsector arising from higher interbank borrowing


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which was subsequently placed abroad aspart of the banks' regional treasury operations.As at end-March, the short-term debtaccounted for only 18.9% of total external debt,and is about 17.9% of the net internationalreserves.

International reserves continued toincrease

The rising trend in the internationalreserves of Bank Negara Malaysia continuedinto the first quarter of 2004. As at 31 March2004, the net international reserves stood atRM195.1 billion or US$51.3 billion,representing an increase of RM24.6 billion orUS$6.5 billion since end 2003. The increase inreserves during the quarter was supportedmainly by higher repatriation of exportearnings, sustained inflows of FDI and largerinflows of portfolio funds in line with theimproved performance in the stock market.The reserves level has also taken into accountthe quarterly adjustment of the foreignexchange revaluation loss amounting toUS$421 million.

The reserves increased further toRM204.7 billion or US$53.9 billion as at 14 May2004, reflecting the sustained repatriation ofexport earnings, drawdown of external loansand the continued inflows of portfolio fundsand foreign direct investment. The currentlevel of reserves is adequate to finance 7.6months of retained imports and is 5.5 timesthe short-term external debt.

Lower Fiscal Deficit

The Federal Government recorded alower fiscal deficit of RM3.2 billion or 3.1% ofGDP in the first quarter. The improvement inthe fiscal position emanated from strongerrevenue collection as well as lower grossdevelopment expenditure. Revenue collectionduring the quarter was higher from both directtaxes and non-tax revenue. As the privatesector demand generated stronger growth, theGovernment prioritised its expenditure, withthe bulk of the outlays extended to the


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education, transport, health and housingsectors. The ample liquidity in the domesticmarket enabled the Government to raise fundsat low interest cost from the domestic marketto finance the deficit. As at end-March 2004,total outstanding debt of the FederalGovernment remained within prudent levels ofRM194.2 billion or 46.5% of GDP. The externaldebt of the Federal Government continued toremain low at 20.2 % of the nation's externaldebt or 8.9% of GDP.


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MONETA RY AND FINANCIAL DEVELOPMENTS

Monetary conditions remained supportiveof private sector-led activities

In a low inflation environment,monetary policy continued to be supportive ofeconomic growth in the first quarter of 2004.The ample liquidity and strengthened capacityof the banking system together with the lowand stable interest rates continued to supportthe financing needs of the private sector.

In the first quarter, the interbank ratesremained low and stable. The overnightinterbank rate ranged between 2.70% - 2.75%.Bank Negara Malaysia absorbed additionalliquidity from expansionary external operationsto maintain stable money market conditions.

A significant development in theconduct of monetary policy was theimplementation of the new interest rateframework on 26 April 2004 by Bank NegaraMalaysia. The changes introduced are toenhance the effectiveness of the monetarypolicy transmission mechanism andpromote more efficient pricing by bankinginstitutions. The new framework is designedto enhance the effectiveness of monetarypolicy by facilitating the transmission ofchanges in the policy rate to the othermarket rates and ultimately, to keymacroeconomic objectives.

The overnight policy rate (OPR)replaced the 3-month intervention rate as theindicator of the monetary policy stance. Thenew framework represented a change in thesystem of implementing monetary policy anddid not represent a change in monetary policy.To reflect this, the OPR was set at theprevailing interbank overnight rate of 2.70%.Since its introduction, the interbank overnightrate has fluctuated within a narrow margin ofaround 2.68% - 2.80%, with an average of2.71% during the period 26 April - 21 May2004. This reflected the smooth transition tothe new framework as market participantsresponded within expectations.

Under the new interest rate framework,each banking institution will announce its ownbase lending rates (BLRs) based on its coststructure and business strategies. Since theintroduction of the new interest rate


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framework, the BLRs of the commercial banks(CBs), with the exception of one institution,remained unchanged at 6.00% while the BLRsof finance companies (FCs) remainedunchanged at 6.90% as at 21 May 2004. Theaverage lending rates (ALR) of the CBs andFCs continued to decline marginally to 6.05%and 8.87% respectively as at 30 April 2004,reflecting the larger components of new loanspriced at lower lending rates.

Sustained private sector financing

Private sector demand for financingremained high during the quarter due to theprevalence of continued low borrowing cost,sustained domestic demand conditions andimproved external economic conditions. Grossprivate sector financing through the bankingsystem and the capital market remainedstrong at RM118.9 billion in the first quarter of2004. On a net basis, outstanding bankingsystem loans and PDS continued to increaseat a strong annual rate of 8.2%.

Reflecting improved business andconsumer sentiment, most loan indicatorsgrew at a strong pace during the quarter.Total loan applications rose further to RM58.6billion, exceeding the quarterly average in2003, while loan approvals remained high atRM37.2 billion. Loan applications were higherfor both businesses and householdscompared with the fourth quarter of 2003.Total loans disbursed increased at an annualrate of 14.4% to RM114.9 billion. Loansdisbursed to the manufacturing andwholesale sectors accounted for 39.5% oftotal loans disbursed.


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Efforts continued to support access tofinancing by the small and medium enterprises(SMEs). Bank lending to the sector remainedstrong in the first quarter of 2004. Higherapprovals from previous quarters resulted inan annual growth rate of 12.3% in loandisbursements to the SMEs, amounting toRM23.7 billion during the quarter. However,higher loan repayments contributed to amoderation in the annual growth rate ofoutstanding loans to the SMEs, to 5.3% atend-March 2004 from 10% at end-2003.During the quarter, a total of RM5.7 billion wasapproved to 18,703 SMEs.


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For the household sector, improvedhousehold income and consumer sentimentwere reflected in the increase in all the majorloan indicators for households compared withthe previous quarter. Loan applications,approvals and disbursements grew at higherannual rates of 29.9%, 20.8% and 17.5%respectively. Approvals were granted mainly

for the purchase of residential properties(44.3% of total loans approved forhouseholds). Loans disbursed for thepurchase of residential properties accountedfor 30.8% of disbursements to households,followed by credit cards (27.2%) and purchaseof passenger cars (19.4%).

Further expansion in monetary aggregates

In line with the higher growth in privatesector-led economic activities and theimproved external sector, all three monetaryaggregates expanded during the quarter. Theannual growth rates of M1, M2 and M3 werehigher at 19.8%, 12.6% and 10.7%respectively at end-March 2004 (14.6%, 11.1%and 9.7% respectively at end-December2003). The higher growth in M1 reflectedstronger demand for transaction balances dueto higher consumption spending as well ashigher turnover in the equity market.Meanwhile, broad money, M3, expanded byRM19.1 billion during the quarter, reflecting thecontinued repatriation of export earnings andinflows of foreign funds for portfolio and directinvestments as well as higher financing by thebanking system to the private sector. This waspartially offset by the increase in deposits with


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and a new issuance of 7-year GII during theyear.

In terms of private issuance, on agross basis, new issues of private debtsecurities (excluding Cagamas bonds)amounted to RM2.8 billion, issued mainly bycompanies in the manufacturing sector. Fundsraised through the PDS market during thequarter were mainly for new activities (38.8%of total PDS) and refinancing (35.1%). Thenew issues were mainly in the form ofmedium-term notes (MTN) and straight bonds.Cagamas Berhad also issued bonds worthRM3.2 billion. On a net basis, the PDS marketrecorded a net redemption of RM880 million. Inthe equity market, RM1.2 billion was raised, ofwhich RM383 million were from 19 initial publicofferings. There were 21 new listings on theBursa Malaysia during the period, with threelistings on the Main Board, 11 on the SecondBoard and seven on MESDAQ.

Bank Negara Malaysia as the Governmentplaced the proceeds from the issuance ofMGS during the quarter.

Higher funds raised in the capital market

In the first quarter of 2004, higher netfunds amounting to RM5.9 billion were raisedin the capital market. The higher net fundsreflected higher gross funds of RM11.5 billionraised by the public sector with threeissuances of MGS. The first issuance of theMerdeka Savings Bond by Bank NegaraMalaysia on 4 February 2004 amounted toRM500 million. Merdeka Savings Bond is anadditional savings instrument for seniorcitizens not employed on a full-time basis aswell as retired Malaysian Armed Forcespersonnel. On a net basis, taking into accountthe MGS and Malaysia Savings Bondredemptions, total net funds raised by thepublic sector was higher, amounting to RM5.5billion (RM2.6 billion in 4Q 2003).

The Government securities auctioncalendar was announced during the quarter,with 17 issues planned for the year. Theauction calendar was designed to furtherlengthen the benchmark MGS and GII yieldcurves with a new issuance of 15-year MGS,


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During the first quarter, KLSE CIgained 107.9 points (+13.6% since the end offourth quarter of 2003). Market capitalisationduring the quarter was also higher at RM724.2billion (+13.1% since the end of the fourthquarter of 2003) while average daily tradingactivities stabilised at 650.6 million units.

KLSE CI registered significant gains

The KLSE CI strengthened furtherduring the first quarter of 2004. Share prices inthe Bursa Malaysia increased, supported bythe favourable corporate performances andbetter economic outlook. While other overseasshare markets also rose during the quarter,the KLSE CI registered significant gains. TheKLSE CI breached the 900-point threshold toreach 908.96 on 22 March 2004.

developments in the first quarter of 2004 · 2014-12-10 · quarterly bulletin first quarter 2004 7...

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