KUALA LUMPUR: While Malaysia’s economic growth moderated to 4.5% in the first quarter (Q1) of 2019 from 4.7% in the fourth quarter of 2018, Bank Negara Malaysia is maintaining its baseline projection of 4.3%-4.8% growth for the year amid escalating tensions in global trade.
Governor Datuk Nor Shamsiah Mohd Yunus said the projection has taken into account the US-China trade war, including the latest tariff increase.
“We’ve encountered episodes of massive outflows in the past and some of the outflows were unexpected, for example the Taper Tantrum, and yet financial markets remained orderly and the economy continued to grow and the financial sector continued to record profitability. What’s more important is for us to continue to strengthen our fundamentals, be it at the economic level or the export level,” she told a press conference after announcing the first-quarter GDP growth here today.
Growth in the first quarter was underpinned by private sector activity, supported by firm private consumption growth.
However, private investment growth declined substantially to 0.4% amid moderating business sentiment.
Nor Shamsiah believes that private investments will gradually improve in the coming quarters despite risks of slowdown in global growth, overhang in the property market and other uncertainties.
Several factors that will continue to support overall investment growth include the ongoing multi-year projects and some of the mega projects.
Nor Shamsiah said Malaysia would see translation of foreign investment approvals into real investments some time this year.
While the country will also benefit from trade diversion, she noted that it will not be enough to offset the contraction in exports.
Private sector demand is expected to remain the anchor of growth amid lower public sector spending. The external sector is likely to grow marginally in tandem with modest global demand.
Overall, domestic demand growth slowed down further by 4.4% during the quarter.
On the supply side, major sectors such as services and manufacturing continued to expand, with the exception of the mining sector due to the decline in oil and natural gas production arising from unplanned closure of production facilities.
The rebound in the agriculture sector on account of strong recovery in oil palm yields provided an additional lift to growth.
In the first quarter, the ringgit appreciated 1.4% against the US dollar, driven mainly by non-resident portfolio inflows which amounted to RM13.5 billion. However, since April, the ringgit has depreciated by 2.1% against the greenback (to RM4.1645 today), in line with most regional currencies.
The recent depreciation pressure reflected cautious investor sentiments in global financial markets amid the weakening global growth outlook as well as uncertainties surrounding geopolitical and global trade developments.
“In light of the more recent global developments, the ringgit, along with regional currencies, have experienced some volatility and depreciation pressure. This is likely to continue in the near term amid concerns over the global growth outlook.
“Uncertainties surrounding geopolitical and trade developments will also be key factors affecting the ringgit and other regional currencies,” Nor Shamsiah said, adding that the outlook for the ringgit will depend on external developments.