Malaysia’s economy expanded 3.6 percent in the fourth quarter from a year earlier—the slowest pace in a decade.
The slowdown is due to the lower output of palm oil, crude oil and natural gas, and a decline in exports amid the Sino-US trade war.
The COVID-19 outbreak in China will further dent the economy this year, especially in the first quarter, the central bank said on Wednesday after releasing the data.
The Malaysian government has forecast the economy to grow at 4.8 percent this year. It is designing a stimulus package for aviation, retail, and tourism because of the epidemic in its largest trading partner.
The rate of expansion in October-December was well below the 4.2 percent increase predicted by analysts in a Reuters poll, and lower than 4.4 percent in the third quarter.
Malaysia chalked up a full-year growth of 4.3 percent, less than the government’s forecast of 4.7 percent and the feeblest since 2016.
According to Bank Negara Malaysia (BNM) Governor Nor Shamsiah Mohd Yunus, substantial spending is still supporting the market, and that is a positive development in the economy. More importantly, the private investment might turn around.
“But there are downside risks. It’s tough to predict how long it will take before (the virus) is contained. There are so many moving parts. But we do acknowledge it will impact us in the first quarter.”
BNM said one could expect foreign exchange rate volatility this year.
Malaysia’s economy, like many in Asia, came under intense pressure last year from the escalating US-China trade war and weakening global demand. These adverse conditions particularly pummeled the mining industry. In response, BNM preemptively cut its benchmark interest rate in January.
Granted, China and the United States agreed on a preliminary deal last month. Nevertheless, the fast-spreading epidemic has raised new global growth risks and heightened expectations of more stimuli in some of the more vulnerable economies.
Demand in China has nosedived as the outbreak causes widespread business disruptions. Moreover, global tourism visits by mainland Chinese are down precipitously as Beijing looks to contain the spread of the virus.
“The stimulus package will comprise of several measures. We have to look at the most optimum policy mix that would support the private sector. But at the same time, we need to ensure the fiscal sustainability of the government continues,” Nor Shamsiah said.
BNM expects headline inflation in 2020 to average higher than in 2019, but remain modest.
Kuala Lumpur. Picture credit: Zukiman Mohamad from Pexels