ZCZC 6303 FINANCIAL MANAGEMENT

Assignment 1: Economic Quarterly Data Review

Gross domestic product (GDP) at constant prices refers to the volume level of GDP. Constant
prices estimates at GDP are obtained by expressing values in terms of a base period. The GDP
constant 2000 prices in (RM billion) in 2010 is at 556.094 which is the highest recorded GDP at
constant prices, as oppose to in year 1998 where only 309.02 is reported. Generally GDP at
constant prices in Malaysia shows an upward trend except in year 1998 with a 7.9% decreases.
Meanwhile Gross Domestic Product (GDP) at market price is the sum of gross value added by all
resident and non resident producers in the economy plus any taxes and minus any subsidies not
included in the value of the products. The highest GDP at market price in (RM billion) was
achieved in year 2008 with the value of 740.91 while the lowest is in 1996 with less than half of
the value in 2008, at 253.73. Basically GDP at market price from the year 1996 to 2010 shows an
increasing trend from year to year except in year 1997 to 1998, which shows a decreasing trend.
This might be due to the recession which happen world wide during that year.
As for the data on average lending rate, lending rate can be defined as the percentage of interest
rate charge by banking institutions to its customers for the use of borrowed fund. From the data it
shows that the highest lending rate in Malaysia ever has is at 11.9 % in 1998 and the lowest is at
4.9% in year 2009. Malaysia average lending rate from year 1995 to 2010 is at 7.3 % while the
latest lending rate at the 3rd quarter of 2010 is at 5.9%. Basically lending rates are increased to
restrict inflation expectations and narrowing the gap between gains in consumer prices and
savings rates. The Overnight Policy Rate (OPR) from Bank Negara Malaysia is reference for
banks in lending rate adjustments, but there might differ from bank to others bank. At the global
money market down turn, lending rate will get lower and if the money market on uptrend, it will
correlation upward. It is wisely and timely to consider take up mortgage loan and start to own
your property at the lower lending rate as current.
The next data is on the Kuala Lumpur Composite Share Price Index, whereby share price index
is used in measuring and reporting of changes in the market value of a group of shares. Share
prices indexes are published in all countries with stock exchange. The Kuala Lumpur Composite
Share Price Index was at its highest point, trading at 1463.5 points in the 3rd quarter of 2010 and
was at it’s lowest in the 3rd quarter of 1998, trading only up to 373.52 points. This scenario does
not only happen in Malaysia but also in our neighboring countries such as Thailand, Singapore,
Hong Kong and Japan. It was trading at below 1000 points from the 3rd quarter of 1997 up to the
3rd quarter of 2006 but has since picked up trading of more than 1000 points starting at the 4th
quarter of 2006.
Next is the consumer price index data (CPI), where it is used as a measure of changes in the
purchasing power of a currency and the rate of inflation. CPI expresses the current prices of a
‘basket’ of goods and services in the terms of the prices during the same period in a previous
year to show effect of inflation in purchasing power. The CPI index in Malaysia shows an
increasing trend where we can see the percentage raising from year to year. The CPI index is
recorded at it’s highest in the 3rd quarter of 2008 at 114.76 points, while the lowest is in the 1st
quarter of 1996 at only 80.4 points.
The last data shows the industrial production index from year 1996 to 2010. The Industrial
Production Index (IPI) is an economic indicator which measures real production output, which

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 ZCZC 6303 FINANCIAL MANAGEMENT

includes manufacturing, mining, and utilities. It is expressed as a percentage of real output with
base year at 1993(as shown in the table). Production indexes are computed mainly as fisher
indexes with the weights based on annual estimates of value added. This index, along with other
industrial indexes and construction, accounts for the bulk of the variation in national output over
the duration of the business cycle. The IPI in the 1st quarter of 1996 is at 55.03 and has been
increasing yearly where it has double up to 107.46 in the 3rd quarter of 2010. The highest
recorded IPI is at 111.33 points which is recorded in the 4 th quarter of 2007. The increasing trend
would probably due to the increases in the manufacturing and the electronic sector.
It is shown that the economic variables discuss above are very much influenced by Malaysia
economic situation. During the economic turmoil in 1997 and economic slowdown in the years
after, it is clearly reflected in the GDP rate where during that period of time it shows a
downwards trend. This effect is also shown in the Kuala Lumpur Composite Share Price index
where Malaysia stock prices decreases drastically thus is reflected at its low trading volume. All
in all the Malaysia government has taken many major steps to ensure that the economic situation
in Malaysia is stable and could attract enough foreign direct investment in this country. Among
other structural measures taken by the Government was the relaxation of restrictions on foreign
investment in services, a reflection of the authorities' efforts to promote the services sector with
the goal of increasing services' share of GDP from around half to 60% by 2020, and reduce
reliance on manufactured exports.

As for the economy outlook in 2011, the government expects the Malaysian economy to grow at
a slower pace of between 5% and 6% in 2011 from the estimated 7% this year, as it anticipates
the manufacturing sector to slow down. According to the Economic Report 2010/2011, the
government forecast the 5% to 6% expansion to be to be supported by resilient domestic
demand, particularly private expenditure. Furthermore Malaysia is also expected to move to a
sustainable growth path in 2011-2014. Rebounding from a negative growth rate in 2009,
economic forecasters expect real GDP to average 4.9% per year. Data from the first half of 2010
showed the Malaysian economy expanded by 9.5% and it is expected to grow by 6.8% for the
year.

On the expenditure side, private consumption and investment will remain the main drivers of
growth in 2010-2014 and exports of goods and services are expected to grow by a rate of 9% a
year for the same period of time. It is also expected that, the services sector will be the largest
sector of the economy due to the government's aim to become a high-income nation by 2020.
Even so, the industrial sector will still form a good size part of the economic outlook, but is
expected to remain smaller than the services sector through 2014. The contribution of agriculture
will be important as the production of palm oil will help raise incomes for rural families. Even as
imports continue to grow, Malaysia's balance of accounts will continue to tilt in a positive
direction meaning Malaysia will continue to post trade surpluses. In summary, Malaysia
continues to look for viable international trade partnerships that propel their economy forward.

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