Highlight Malaysia’s economy grows slower at 4.9% in 2Q

by **Cals** Fri 14 Aug 2015, 18:44

Highlight
Malaysia’s economy grows slower at 4.9% in 2Q
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KUALA LUMPUR: Malaysia’s economy grew at a slower pace of 4.9% in the second quarter of 2015 (2Q15), compared with 5.6% in 1Q15 and 6.4% in 2Q14, dragged down by lower exports and weak domestic consumption after the goods and services tax (GST) kicked in in April.
Gross domestic product expansion was still above consensus expectations of a 4.5% year-on-year (y-o-y) rate.
On a seasonal adjusted quarter-on-quarter basis, the economy grew 1.1%, with private-sector demand remaining the key driver of growth during the quarter.
“We are still in what we have described [in the past] as a growth path of 4%-6% ... we expect to remain in this growth range for the remaining of this year,” Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz told a packed press conference yesterday.
“Domestic financial stability continues to be preserved despite the volatility around us in the global and domestic financial markets during the quarter (2Q15),” she added.
Growth in the services sector slowed to 5% y-o-y in 2Q15 from 6.4% in 1Q15, while manufacturing sector growth fell to 4.2% from 5.6% in the previous quarter. The mining and quarrying sector also moderated to 6% from 9.1%.
“Net exports recorded negative growth of 10.5% during the quarter, due mainly to weaker exports and slower global demand, compared with the strong growth of 8.8% in 1Q15, which was lifted by strong front-loading of services prior to the implementation of the GST,” Zeti added.
She noted that while private consumption growth moderated to 6.4% from 8.8% in 1Q15 due to households’ adjustment to the implementation of the GST, it was surprisingly just marginally lower than the average long-term growth of consumption of 6.7%.
Zeti noted that while downside risks remain largely concerns over the external environment impacting the local economy, Malaysia had a “diversified economic structure” supported by strong fundamentals to withstand “risks and challenges”.
“While the exchange rate depreciation may be unsettling, the impact on growth and inflation will be contained, mitigated by resilient domestic and external fundamentals,” she said, asserting her confidence in the strength and stability of the Malaysian economy.
The central bank governor, meanwhile, ruled out the possibility of the implementation of capital controls to stem the ringgit’s decline, saying that such “extreme measures” are not warranted as the economy is not in an “extreme situation”.
“An extreme situation is when the economy plummets into a deep recession. We don’t expect to be in that kind of situation and we do not expect it. We have restructured our economy and there are many positive developments that are occurring in the economy,” she stated.
Zeti is of the view that the volatility in the global and domestic financial markets is likely to continue until uncertainty over the policy direction of major economies, such as the United States and Europe, is removed, especially with regard to the normalisation of interest rates in the US.
“When the US Federal Reserve’s tapering actually commenced [in December 2013], [we saw] the market stabilise. [Likewise,] we believe that once the [interest rate] normalisation actually takes place, [the] financial markets will stabilise,” she said.
Zeti pointed out that Malaysia was able to withstand one and a half years of volatility at the worst of times during the 1997 to 1998 Asian financial crisis.
“We are not immune to external developments, but we have demonstrated time and again that we were able to rebound quickly from any setback,” she said.
The governor also dismissed concerns about diminishing foreign exchange reserves, which dropped below US$100 billion (RM401 billion) for the first time since August 2010 to US$96.7 billion as of July 31, from US$100.5 billion on July 15.
“We held reserves way beyond the level that is needed for our country and therefore the current level is well within levels that we are still comfortable with, which will take us through the next few months and into the next year,” she said.
BNM said the US$96.7 billion reserves position was sufficient to finance 7.6 months of retained imports and was 1.1 times the short-term external debt.
On China’s surprise move to devalue its currency this week, which has unsettled global financial markets, Zeti deemed the impact as “not significant”, as the yuan had only adjusted by 3% to 4% against the ringgit since August 2014, compared with about 20% vis-a-vis the US dollar.
“This [impact] is not significant, but it surprised the market and therefore the market will adjust to these changes. If they look at it in perspective, there shouldn’t be an overreaction to this move. If it’s good for China, it’s good for the rest of us as well,” she said.
She added that there is no shortage of US dollars in the system as there had been no disruption in any of Malaysia’s financial markets, and liquidity remains ample.
[You must be registered and logged in to see this image.][size=12]Zeti has ruled out the possibility of the implementation of capital controls to stem the ringgit’s decline. Photo by Shahrin Yahya[/size]
This article first appeared in digitaledge Daily, on August 14, 2015.