Malaysia’s economic growth slows to 1-year low as trade sags

Despite headwinds from US-China trade war, Malaysia’s central bank is confident that growth can be sustained.

Malaysia death Penalty
The governor of Malaysia's central bank said that it is 'not on any preset course' to lower interest rates, although analysts think it may have to do so to keep the economy growing [File: Vincent Thian/The Associated Press]

Malaysia‘s economy grew at its slowest pace in a year in the third quarter as exports faltered, but the central bank said growth will remain positive, supported by domestic spending.

The Gross domestic product (GDP) – the sum of all finished goods and services produced in the country – grew by 4.4 percent in the July-September period, slowing from the 4.9 percent pace in the previous quarter, Bank Negara, Malaysia’s central bank, said on Friday.

Growth in Southeast Asia’s third-largest economy slowed across all sectors, particularly in mining, which contracted by 4.3 percent compared with a 2.9 percent expansion in the April-June period, central bank data showed.

The economic growth rate matched the expectations of economists and analysts polled by Reuters and Bloomberg.

“Overall, growth is expected to be within projections in 2019 and the pace sustained going into 2020,” Bank Negara Malaysia (BNM) said in a statement on Friday.

Malaysia’s economic growth is expected to improve in the fourth quarter as mining activities resume, it added.

“Our preliminary estimates suggest that GDP growth could pick up to 4.5 percent in the fourth quarter with higher seasonal spending and accelerated government spending. A turnaround in the mining sector could also alleviate the drag on growth,” said Julia Goh, senior economist at UOB Global Economics and Markets Research, in a note to clients shared with Al Jazeera.

But economists say that risks to economic expansion from the ongoing global trade war and economic slowdown could weigh on prospects.

“There is still a lot of potential risk from the external side,” Lee Heng Guie, executive director at the Socio Economic Research Centre in Kuala Lumpur told Al Jazeera after a meeting with the central bank.

Potential rate cut

While BNM maintained its full-year growth target of between 4.3 percent and 4.8 percent, analysts believe it may have to cut rates to support growth.

“The weak growth figure in every sector means BNM will need to cut rates to support growth,” said Trinh Nguyen, senior economist at Natixis Asia Ltd in Hong Kong, predicting the benchmark rate will be 50 basis points lower by the end of 2020. “Inflation is low and growth is decelerating, so the hurdles to a rate cut are low.”

BNM last cut its key policy rate in May.

In the previous quarter from April to June, Malaysia was the only Southeast Asian nation to record acceleration in economic growth, though growth slowed in the second half from a contraction in exports. Shipments slumped to their lowest level in nearly three years in September.

The Malaysian ringgit fell 1.1 percent against the United States dollar in the third quarter, which BNM attributed to investors moving funds to what they regard as safer assets such as the Japanese yen or US government bonds. The protracted trade war between the US and China was cited as a key reason.

The headline inflation rate came in at 1.3 percent in the third quarter but is expected to be “low” in 2019, and modest though higher in 2020, BNM said.

Inflation has remained benign after an unpopular consumption tax was scrapped in June 2018, and as the government tried to cap domestic petrol prices.

Source: Al Jazeera, News Agencies