Bank Negara governor says economy expected to be resilient

KUALA LUMPUR: Malaysia’s economy surprised in the second quarter by growing 4.9%, above the consensus figure of 4.5%. But economists warned that the next six months would be challenging.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said the economy was expected to be resilient and remain on a steady growth path, buoyed by domestic demand.

However, global growth had become more vulnerable to increased downside risks, she said.

In the second quarter, private consumption slowed down, growing by 6.4% compared with 8.8% in the first quarter, as households adjusted to the impact of the goods and services tax (GST) which kicked in in April, while private investment growth came down to 3.9% from 11.7% earlier.

Gross exports declined by 3.7% compared with 2.5% the quarter before, mainly due to less export of commodities and resource-based manufactured products.

“Despite the sentiment, growth in consumption has still been favourable. We actually expected it to be lower because there was a lot of front loading in the first quarter,” Zeti told a packed press conference yesterday.

She said wage growth and stable labour market conditions would provide support to household spending, while investment activity would be supported by capital spending in the manufacturing and services sectors.

“In the case of investment activity, based on approval numbers, these have not declined. In fact, they have increased and, therefore, our anticipation is that investment activity will recover from current levels,” Zeti added.

“The second half is something we need to watch, it will be more challenging,” independent economist Lee Heng Guie said.

On the external front, a lot of it would depend on exports and at the moment, visibility was still quite low amid weak crude and palm oil prices, Lee said.

Citing the private consumption and private investment figures, which showed declines, Lee said such numbers were likely to continue into the third quarter, given that the current sentiment was being affected by the sliding ringgit and ongoing political uncertainties.

“Hopefully, there will be some rebound by the fourth quarter,” Lee said.

Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias said going forward, the anaemic global trade performance would likely pose a challenge to Malaysia’s overall export performance.

“Declining commodity prices will likely bite into Malaysia’s net trade while consumer spending will likely continue to soften.”

After growing 5.6% in the first quarter, the economy expanded by 4.9% in the second quarter, supported by a turnaround in agricultural production, which grew by 4.6% compared with a contraction of 4.7% previously amid higher production of palm oil.

The services, manufacturing, mining and construction sectors all registered declines.

Headline inflation was higher in the second quarter, up by 2.2% compared with 0.7% earlier due to the implementation of the GST.

Zeti said that at the current level of overnight policy rate, monetary conditions remained supportive of economic activity.

The Monetary Policy Committee left its key lending rate unchanged at 3.25% at its last meeting in July.

As at July 31, the central bank’s international reserves had dipped below US$100bil – the first time since 2010, according to Bloomberg – to US$96.7bil.

“We will build it up again,” Zeti said.

The current level was sufficient to finance 7.6 months of retained imports, significantly higher than the three-month international threshold, she said.