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Malaysia's economic growth slows to 4.4% in Q3

Malaysia's economic growth slows to 4.4% in Q3

Malaysia's economic growth slowed to 4.4% in the third quarter as a weakness in external demand and "supply shocks" offset a marked rise in household spending.

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By Meili Chen 19.11.2018

Malaysia’s economic growth slowed to 4.4% in the third quarter as a weakness in external demand and “supply shocks” offset a marked rise in household spending.

The country’s economy has now cooled for four successive quarters, with the 4.4% figure from July to September representing the slowest pace of growth since late 2016 and a small drop from the 4.5% expansion recorded during the previous quarter, Bank Negara Malaysia (BNM) said late on Friday.

The central bank noted that the latest slowdown was due in part to a series of unexpected events that resulted in changes to the supply of both palm oil and liquified natural gas during the third quarter. This knocked as much as 0.7 percentage points from growth, though the bank said that the supply issues have now plateaued.

Malaysia’s latest slowdown poses a fresh challenge for Prime Minister Mahathir Mohamad, who has now been in power for six months after ending a single-party rule that dated back to the 1950s. While growth has steadily tracked lower in 2018, BNM Governor Nor Shamsiah Mohd Yunus said that the country’s economic outlook is healthy and that growth should come in at 4.9% next year.

A robust private sector is driving this recovery, and the Refinery and Petrochemical Integrated Development (RAPID) project, new investments and a commodity output rebound will all lay the foundation for growth in 2019. Nor Shamsiah added that “employment and income growth” will increase private consumption, while foreign and domestic direct spending will support private investment.

Household spending was strong between July and September, rising by 9%. Private spending also increased by 6.9%, but the supply shocks elsewhere checked these gains. Malaysia’s economy grew by 4.7% over the first three quarters of the year and is still on course to hit a figure of 4.8% for the full calendar year.

Oil prices have slumped during the last two weeks, but Nor Shamsiah does not expect the decline to have any lasting impact on growth in the short, medium or long term, as Malaysia has the fundamentals in place to absorb intermediate capital flows.

She said: "The non-commodity sector accounted for more than 18% of the economy, while the mining sector only 8.4%, hence the impact on the growth is manageable. The lower oil prices, however, will lend positive support to higher consumption [via lower fuel prices and higher disposable income].

"In 2015, oil prices had dropped to US$40 per barrel, and the ringgit depreciated by nearly 30% to 4.4 to a US dollar and ([at the same time Malaysia experienced] a significant outflow during the year, yet our economy continued to record growth of above 4.0%.”

The trade war is still a potentially disruptive factor for emerging Asia, especially if it runs well into the new year. The central bank said that any further tensions could be a drag on growth, while volatility in the financial market and problems with commodity production could all be downside risks for the economy in the foreseeable future.

Nor Shamsiah also expects an uptick in global oil prices to affect headline inflation, which could rise by up to 3.5% in 2019. Malaysia’s domestic currency, the ringgit, has struggled against a strong US dollar this year, and this trend is set to continue.

She concluded: "demand condition is expected to remain sustainable, and that is why the underlying inflation, excluding the impact of the consumption tax, is expected to remain stable next year.”

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