KUALA LUMPUR: Malaysia's economy grew at its slowest pace in two years in the July-September quarter as the country grappled with weak external demand and what the central bank called "supply shocks" for liquefied natural gas and palm oil.
The fourth straight quarter of slowing growth presents a challenge for the administration of Prime Minister Mahathir Mohamad, who in May ended six-decade-long single party rule in Southeast Asia's third-largest economy.
Annual growth in the third quarter was 4.4 per cent, down from 4.5 per cent in the previous quarter, Bank Negara Malaysia (BNM) said.
BNM expects the country's economic prospects to remain firm in 2019, and grow at a rate of 4.9 per cent, underpinned by continuous private sector activities, BNM Governor Nor Shamsiah Mohd Yunus said on Friday (Nov 16).
She said that the commencement of new production facilities the Refinery and Petrochemical Integrated Development (RAPID) project and the recovery of commodity output would further support the growth next year.
"Private consumption will be supported by employment and income growth, while private investment will be supported by both foreign direct investment and domestic direct investment in diverse sectors," she told a press conference.
The central bank said growth in the third quarter was supported by a 9 per cent increase in household spending and 6.9 per cent gain in private spending.
But the supply shocks from LNG and palm oil markets lowered growth for Southeast Asia's third-largest economy by 0.5-0.7 percentage point, the central bank said. The supply shocks have bottomed, it said.
In the first three quarters, the economy expanded by 4.7 per cent and is on track to register a growth of 4.8 per cent this year, Nor Shamsiah said.
The decline in oil prices will not have any material impact on the economy or growth projection for 2019, Nor Shamsiah said, citing Malaysia's diversified economy and export structures and the deep financial market that allows the country to absorb intermediate capital flows.
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"The non-commodity sector accounted for more than 18 per cent of the economy while the mining sector only 8.4 per cent, hence the impact on the growth is manageable. The lower oil prices, however, will lend positive support to higher consumption (via lower fuel prices and higher disposable income).
"In 2015, oil prices had dropped to US$40 per barrel and the ringgit depreciated by nearly 30 per cent to 4.4 to a US dollar and (at the same time Malaysia experienced) a significant outflow during the year, yet our economy continued to record growth of above 4.0 per cent," she explained.
Touching on the downside risk to growth, the central bank governor said that further escalation of global trade tensions, greater financial market volatility and unanticipated disruption in commodity production could be pose challenges to Malaysia's economy.
Nor Shamsiah also said that she expects headline inflation to be higher at between 2.5 and 3.5 per cent in 2019, primarily due to higher projected global oil prices and the floating of domestic fuel prices.
"While the impact of the consumption tax policy will contribute to higher inflation in 2019, it will lapse towards the end of the year.
"But demand condition is expected to remain sustainable and that is why the underlying inflation, excluding the impact of the consumption tax, is expected to remain stable next year," she said.
As for the local currency, the ringgit is expected to continue to be affected by the strengthening US dollar and external uncertainties going forward, added Nor Shamsiah.