Malaysia | Growth eases further as exports, investments slip

Malaysia’s economy grew at the slowest pace in more than six years as exports weakened and private investment eased, adding pressure on policy makers to boost growth amid an uneven global recovery.
Gross domestic product rose 4.2 percent in the three months through March from a year earlier, after climbing 4.5 percent in the previous quarter, the central bank said Friday. That compares with a 4 percent median estimate in a Bloomberg News survey.
Rising costs are crimping business investment while government finances for the oil-exporting nation have been hurt by the decline in crude prices over the past two years. The International Monetary Fund last month lowered its forecast for global expansion this year and warned that a prolonged period of slow growth has raised stagnation risk. Malaysia’s central bank has kept its benchmark rate steady even as inflation accelerated.
“The balance of risks in 2016 is skewed towards growth disappointment and fiscal slippage, with inflation pressures of second-order concern,” said Weiwen Ng, an economist with Australia & New Zealand Banking Group Ltd. in Singapore. “We see an overhanging risk of a policy rate cut if the growth outlook deteriorates significantly.”
The ringgit fell 0.2 percent to 4.0345 a dollar as of 2:55 p.m. in Kuala Lumpur Friday. The Malaysian currency has declined about 3.3 percent this quarter, the weakest performer in the Asia Pacific after outperforming all others in the first three months of 2016.
Growth is expected to improve in the second half of this year, helped by higher civil servant wages and improved commodities production from the diminishing effect of El-Nino, Bank Negara Malaysia said Friday.
The economy is on track to expand 4 percent to 4.5 percent this year as projected by the government, Governor Muhammad Ibrahim said. Inflation is forecast by the government to rise between 2.5 percent and 3.5 percent in 2016. Muhammad succeeded Zeti Akhtar Aziz as central bank governor this month.
The central bank left interest rates unchanged for a 10th meeting in March as accelerating inflation reduced scope for a cut in borrowing costs. Earlier this year, Bank Negara Malaysia lowered the amount of cash that banks must set aside as reserves to boost funds in the financial system.
The reduction in the statutory reserve requirement has eased pressure on the inter-bank market and banks are lending more among each other, the central bank said. Monetary policy remains accommodative and supportive of economic activity, Muhammad said.
“This is as good a hint as any that the BNM governor is not at all keen to cut rate and shift away from the cautious and prudent policy stance that has been set in place by his predecessor, Dr. Zeti Aziz, any time soon,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore. Chong Pooi Koon, Bloomberg