Q3 growth slowing slightly, consumption still weak

comments     Reuters     Published     Updated

Weak private consumption is expected to have pulled down Malaysia's third-quarter economic growth rate to the slowest pace in over two years, but recent solid exports and manufacturing data may offer some support, economists said.

Through the first half of 2014, Malaysia had robust growth. But then collapsing global crude and commodity prices, along with a slowdown in China and political uncertainty at home, have impacted its economy.

The median forecast in a Reuters poll of economists is for annual growth of 4.7 percent in July-September, which would be the lowest since the second quarter of 2013.

This would continue the slowdown of 2015. Second-quarter growth slipped to 4.9 percent from the January-March pace of 5.6 percent.

Malaysia relies on domestic consumption as its key growth driver, and analysts say the trend of consumers tightening their belts after a six percent Goods and Service Tax (GST) took effect in April has not abated.

"The slight slowdown in the third quarter is due to slower private consumption following the implementation of GST," said Alan Tan, economist at AffinHwang Capital.

Jeff Ng, economist at Standard Chartered, said GST 'continues to distort the spending pattern'.

Surveys by Nielsen Malaysia and the Malaysia Institute of Economic Research show consumer confidence fell in the third quarter.

For 2016, Prime Minister Najib Abdul Razak's budget contains incentives for farmers and tax breaks for families, to help them cope with the tax and rising living costs.

Export support

Another factor crimping consumption has been the depreciation of the ringgit, which this year is emerging Asia's worst-performing currency, weakening nearly 20 percent against the dollar.

Analysts say the weaker currency is helping boost manufacturing exports, reversing declines seen in the first half. September's exports were more than double the forecast, as demand for production goods offset the fallout from commodities.

"Malaysia is looking at more external support rather than domestic support," said Ng.

But downside risks to growth remain as oil prices continue to stay weak and political uncertainty lingers in Malaysia.

Najib is facing pressure over a scandal surrounding state fund 1MDB that erupted in July, when The Wall Street Journal reported that investigators had found that nearly US$700 million had been transferred into his bank account.

Najib, who is chairperson of 1MDB's advisory board, has denied wrongdoing or taking any money for personal gain.

- Reuters



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