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2nd September, 2008
THE GROSS INFLOW of foreign direct investment (FDI) increased to RM12.2 billion in the second quarter of this year from RM7.1 billion in the first quarter.
The FDI inflows were mainly into services, manufacturing and oil and gas sectors, Bank Negara said in a statement.
After adjustment for gross outflows due mainly to repayments of short-term loans, net FDI increased to RM8.3 billion from RM2 billion in the first quarter, it said.
Overseas investment by Malaysian companies recorded a net outflow of RM3.5 billion (first quarter: RM6.6 billion), reflecting sustained investments in the manufacturing and services sectors, it said.
Portfolio investment registered a net outflow of RM31.8 billion compared to net inflow of RM1.5 billion in the first quarter due to net liquidation of both bonds and equities by foreign investors, it said.
During the quarter, investor sentiment in Malaysia and in the Asian region was affected by concerns over impact of higher energy prices and US economic slowdown on growth prospects in the region, it said.
The Malaysian economy registered a 6.3 percent growth in the second quarter of 2008, a slight drop from 7.1 percent in the first quarter.
The growth was supported by strong external demand while domestic demand expanded at a more moderate pace, the central bank said.
Growth in domestic demand moderated but remained strong at 7.8 percent in the second quarter from 10 percent in first quarter, it said.
Private consumption increased by nine percent (first quarter: 11.7 percent) in an environment of higher consumer prices and softer consumer sentiment, it said.
It said higher expenditure on emoluments, defence, supplies and services supported the growth in public spending which grew by seven percent in second quarter against six percent in previous quarter.
Investment activity was sustained at 5.6 percent from six percent in first quarter, supported by continued inflow of foreign direct investment, mainly into services and manufacturing sectors and higher development expenditure by the government, it said.
On external front, the trade balance registered a record surplus of RM40.8 billion from RM26.8 billion in the first quarter, backed by strong commodities and resource-based manufacturing exports, it said.
It said financing activity in the second quarter remained strong and supported domestic economic activities.
On a net basis, banking system loans and private debt securities outstanding expanded by 14.1 percent at end of June.
Loans outstanding increased by 11.7 percent at end of June, reflecting increases for both the business and household sectors, with loans outstanding in these sectors expanding at 14.4 percent and 8.9 percent, respectively, it said.
Net funds raised in the capital market were significantly higher in the second quarter, amounting to RM27.7 billion, central bank said.
In the private sector, net funds raised through the PDS market were higher at RM15 billion, while net funds raised through the equity market amounted to RM1.7 billion, it said, adding that net funds raised by the public sector amounted to RM11 billion.
M3, or broad money, expanded by RM16.1 billion during the quarter, increased at an annual rate of 14.2 percent at end of June, it said. The increase during the quarter was mainly due to higher lending to the private sector.
During the second quarter, the ringgit depreciated by 2.4 percent against the US dollar, it said.
The banking system continued to exhibit resilience and is well-positioned to support the financing and financial services needs of the domestic economy, it said.
As at end of June 2008, the banking system remained well-capitalised with risk-weighted capital ratio and core capital ratio of 13 percent and 10.1 percent, respectively, it said.
It said the banking system recorded a pre-tax profit of RM5.2 billion during the quarter, with annualised average returns on assets and equity of 1.7 percent and 22 percent, respectively.
Meanwhile, net non-performing loans based on 3-month classification declined further by 6.7 percent to RM17.8 billion to account for 2.7 percent of total net loans, it said.
Going forward, the central bank said the international economic and financial environment is expected to be more challenging.
Global growth is projected to weaken further with a more protracted slowdown in a number of the developed economies and some moderation in growth in the emerging economies, it said.
While commodity and energy prices have experienced some correction in response to signs of slower global growth, prices remain elevated, it said.
Meanwhile, the international financial markets continue to remain fragile.
It said the domestic economy will be affected by external developments.
In addition, the impact of rising commodity and fuel prices and costs will continue to have a deflationary impact on domestic demand as well as affect consumer and business sentiments.
Despite signs of moderating growth, the underlying fundamental strength of the Malaysian economy and the resilient banking sector provide the potential of the Malaysian economy to resume its steady growth path, it added.
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