Construction fuels Malaysian growth

The Malaysian economy saw incredibly positive news recently, as one analyst believes the country is set to see significant growth. Moody Analytics forecasts have been revised, as the company now sees Malaysia's GDP increasing by more than it predicted, potentially by a significant amount.

Moody originally forecast Malaysia's GDP would grow by 5.3 per cent in the fourth quarter (Q4) of 2014, but it now looks set to exceed that. Matthew Circosta, the company's Sydney-based analyst, said: "Our 5.3 per cent estimate could be on the low side, as strength in technology production and construction is helping to offset a slowdown in the energy sector."

The most interesting aspect of all this is that construction activity has increased so strongly in Malaysia that it has been able to prop up other sectors, such as energy. This bodes well for the nation's future, with more and more building projects being announced all the time. But can it keep this level of activity up?

 

Falling oil prices

The world has recently seen oil prices drop to below $50 per barrel, something that has the potential to cause economic chaos in many countries. However, this simply hasn't happened in many cases, Malaysia included. This is due to its booming buildings industry, which has seen increased activity recently.

Malaysia produces oil, so the drop in prices hurt the country's economy. However, it is a testament to the strength of its construction industry that the country's GDP is set to not only grow, but to exceed expectations.

Moody estimates that it could have increased by as much as 5.6 per cent in Q4 of 2014, which would in turn put the growth for the full year at around six per cent. This would be one of Malaysia's best GDP results in around seven years.

In theory, this should allow for even more growth with additional investment in the construction sector. A higher GDP usually means more people purchase homes, leading to more residential building. However, this is not always the case, and there are a number of other factors that need to be considered.

 

External effects

First of all, decreased oil prices could cause a more severe effect in the first quarter of 2015 than they would in Q4 2014, which could cause an economic slowdown. As more companies react to the drop in oil revenue, it could end up having a knock-on effect with firms investing less money in construction work.

There is also the fact that China's economy is becoming weaker, which means the nation is importing less. For Malaysia, this means that a major customer will be buying fewer goods, which is sure to hit the smaller nation's finances overall.

However, both of these problems are likely to hit the overall economy, not the construction sector specifically. If anything, the fall in oil prices could end up boosting activity as it makes construction work slightly cheaper. Growth might slow down, but construction activity may well remain the same.

 

What does the future hold?

The overall effect of this is likely to be fairly small for the Malaysian build and interiors sector. On the one hand, there are factors that will speed up construction work, but on the other are things that will slow it down. However, it seems unlikely that the negatives will outweigh the positives in this instance.

While Malaysian economic growth might slow down overall, the country's GDP is still set to increase. With none of the potential financial pitfalls of the next few months looking like they will affect the construction industry directly, it could end up being a very profitable time for Malaysian build and interiors firms.

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