Malaysia's growth cools in Q4, spending offsets weak commodities

comments     Joseph Sipalan, Reuters     Published     Updated

Malaysia’s economy lost more momentum in the fourth quarter but grew faster than market expectations, with domestic demand helping to offset slumping oil and commodity prices.

The economy expanded 4.5 percent in the fourth quarter compared with a median forecast of 4.3 percent in a Reuters poll, and down from 4.7 percent in the third quarter.

South-East Asia’s third-largest economy grew 5 percent in 2015, slowing from 6 percent in 2014, but growth was within the government's 4.5-5.5 percent estimate.

The central bank, however, warned that the economy was expected to face a “challenging operating environment in the immediate future”.

“Growth will continue to be driven by domestic demand, with some support from net exports,” Bank Negara Malaysia (BNM) said in a statement today.

On the bright side, the current account surplus doubled to RM11.4 billion (US$2.74 billion) in the October-December period from the previous quarter, boosted by higher portfolio and foreign direct investments.

Fourth quarter growth was partly propped up by improving private consumption, which rose 4.9 percent compared with 4.1 percent in the previous quarter.

That was helped by a dip in inflation to 2.6 percent in the fourth quarter - down from 3 percent in the previous three months - due to lower domestic fuel prices, though positive sentiments were offset by higher cost of food and cigarettes.

Risks remain

The central bank cautioned the economy continues to face elevated downside risks as evident in heightened financial market volatility in early 2016 amid concerns of slowing global growth, the fall in energy prices and global policy shifts.

“Going forward, although the global economy is projected to expand further, growth is expected to be moderate and uneven,” BNM said.

Capital Economics said in a research note that despite its above-consensus forecast for the fourth quarter, it was far from upbeat about prospects for Malaysia this year.

“The effects of low commodity prices will continue to feed through into the real economy, curtailing investment in the energy sector, keeping commodity export income weak and hurting fiscal revenue.”

Malaysia’s ringgit currency was Asia’s worst performer in 2015, battered by the global crude oil slowdown and uncertainty tied to a corruption scandal involving state fund 1MDB.

The country’s rapidly diminishing surplus could also pose a risk for the ringgit, although the currency has recently found some respite with a return of foreign capital to ringgit bonds.

The ringgit firmed after the GDP data, hitting a session high of 4.1540 against the dollar.

- Reuters



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