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Friday, 18 May 2018

(The Star) GDP growth slows to 5.4%

PETALING JAYA: Malaysia’s economy has moderated to its slowest pace in four quarters, as private investment decelerates while public spending continues to decline.

Data from Bank Negara showed the country’s gross domestic product (GDP) growth had slowed to 5.4% in the first quarter of 2018 from 5.9% in the preceding quarter.

The number also came in below the market expectation of a 5.6% GDP growth for the first three months of the year, based on a median estimate in a Bloomberg survey.

Bank Negara governor Tan Sri Muhammad Ibrahim said although growth in the first quarter of 2018 was slower than projected, the outlook for the full year remained favourable, supported by healthy domestic demand and improving global growth and trade activities.

“Although Malaysia’s GDP in the first quarter was slightly lower than the projected 5.5% to 6% for the full year, growth is expected to remain favourable, going forward.

“This will be driven by continued strength in both domestic and external demand,” Muhammad said at a briefing on Malaysia’s first-quarter economic performance.

He noted that Malaysia’s export growth would continue to benefit from sustained demand from key trading partners, expansion in global technology cycle and increased domestic production capacity.

Muhammad said the GDP growth target for 2018 would be maintained at 5.5% to 6%, pending further assessment of the policy initiatives under the new government, led by Prime Minister Tun Dr Mahathir Mohamad.

“There are changes to the policies under the new administration. We will assess the impact on the GDP once all the policy initiatives by the new government are outlined.

“If there is a need for change (in our projection), we will work it out together with the Finance Ministry and then announce it,” Muhammad said.

In the first quarter of 2018, the country’s overall GDP growth was underpinned by continued expansion in private-sector activity and strong support from net exports.

During the quarter in review, private consumption growth was sustained at 6.9%, while net exports grew 62.4%.

Private investment growth, on the other hand, moderated to 0.5% due to lower growth of structures and machinery and equipment investments, while public-sector consumption growth slowed to 0.4% and investment fell 1%.

Meanwhile, headline inflation declined to 1.8% in the first quarter of 2018 from 3.5% in the preceding quarter, reflecting the smaller contribution of domestic fuel prices due to the smaller increase in global oil prices and a stronger ringgit in the three months to March 2018.

Bank Negara said headline inflation for 2018 is projected to average at 2%-3% in 2018, down from 3.7% last year, due to a smaller contribution from global cost factors and a stronger ringgit compared to 2017.

On the new government’s plan to zero-rate the goods and services tax (GST) from June 1, and revert back to the sales and services tax, Muhammad said it is important for businesses to pass the benefit of lower prices to consumers.

“Our expectation is that prices of goods and services, on which GST has been imposed, will decline. It is very important that businesses pass this benefit to consumers at large.

“The relevant authorities should ensure that consumers benefit from the reduction in the GST from 6% to 0%,” he added.

Muhammad, however, conceded that it is still too early to assess the impact of the GST removal on the country’s inflation at the moment.

“Most likely, it will have an impact on inflation but it is still too early for us to calculate right now. We will look at it again when new information comes in. If need be, we will revise the inflation rate,” he explained.

As for the ringgit’s performance, Muhammad noted that the local currency had remained relatively stable despite the recent change in Government.

“There will be a lot of noise in the short term that will affect the ringgit but in the medium and long term, the ringgit will adjust to reflect the economic fundamentals,” he added.

Muhammad said the central bank would provide the necessary liquidity to the market if there is a spike in the currency market.

“The whole purpose of intervention is to make sure the market will adjust to the market in a smooth manner,” he said.