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Malaysia’s growth drops to slowest pace in nearly seven years

Malaysia recorded its slowest economic growth in nearly seven years in the first quarter, as weak exports and tepid domestic demand continue to hurt the trade-dependent nation.

In January-March, the economy grew 4.2 percent from a year earlier, slightly beating the 4.1 percent median forecast in a Reuters poll but down from 4.5 percent in the previous quarter.

The quarter was the fifth straight of declining growth and also had the slowest expansion since the third quarter of 2009.

Muhammad Ibrahim, the newly-appointed governor of Bank Negara Malaysia, indicated the current quarter could bring further slowing.

The governor projected that growth will improve in the second half “driven by higher production in manufacturing sector from added capacity, improved commodities production after El Nino and higher minimum wages”.

Muhammad, who succeeded highly-respected Zeti Akhtar Aziz, also reminded Malaysians that their country is an open economy and how it fares depend on global growth. “We are not immune,” he added.

Private section consumption increased 5.3 percent from a year earlier, an improvement on 4.9 percent in the previous quarter and 4.1 percent in July-September.

But by historical standards, the increases are small for Malaysia. Consumption has been crimped by the government’s implementation of a 6 percent Goods and Services Tax in April 2015.

In January, the government revised its 2016 growth projection for South-East Asia’s third largest economy to 4.0-4.5 percent from the initial 4.0-5.0 percent, on expectations of a sustained slump in global crude prices.

The current account surplus narrowed to RM5 billion (US$1.24 billion) in the first quarter from a revised RM10.5 billion for October-December.

In the second quarter, the ringgit has been Asia’s worst-performing currency, shedding more than 3 percent against the dollar, which analysts say partly stems for woes of state-owned fund 1Malaysia Development Berhad (1MDB), which recently defaulted on a payment to bondholders.

But the ringgit remains the best performing currency this year, after strengthening 10 percent during the first quarter.

1MDB ‘priced in’

Today, Muhammad said concerns over 1MDB will not affect investor confidence and the country’s sovereign rating.

“Because the government has already said they will honour all (its) debt obligations. The sovereign rating of Malaysia will not be unduly affected, and I think the ringgit has priced in the 1MDB issue,” he said.

The central bank slapped a fine on the state fund last month for failing to comply with its rules, and added that it was ending its investigations into the fund.

Economists say improved exports are essential for Malaysia, to get its growth-rate back up. The central bank said exports decreased 0.5 percent in the first quarter from a year earlier, a reflection of their subdued momentum.

ANZ Research said that lower oil prices means that Malaysia “will still be confronted with significant growth and fiscal headwinds, with residual concerns about 1MDB”.

Wellian Wiranto, economist at OCBC in Singapore, said the first-quarter GDP data is “not a print that would spook Bank Negara into trimming its policy rate anytime soon, much less when it meets next Thursday”.

- Reuters

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