Malaysia's economy grows 4% in Q2, slowest pace in nearly 7 years

The Kuala Lumpur city skyline as seen from the KL Tower.
The Kuala Lumpur city skyline as seen from the KL Tower.PHOTO: AFP

KUALA LUMPUR (REUTERS) - Malaysia's growth pace slid again in the second quarter, moving at its slowest pace in nearly seven years, as poor global demand for commodities continued to impact the trading nation.

South-east Asia's third largest economy grew 4.0 per cent in the second quarter from a year earlier, in line with a median forecast in a Reuters poll but lower than 4.2 per cent in January-March.

This is the slowest rate of growth since the third quarter of 2009, when the economy contracted 1.2 per cent. It's also the fifth quarter in a row in which Malaysia's growth rate has declined.

Malaysia's central bank said uncertainties in the global environment could weigh on growth in the second half of this year.

"To date our economy remains resilient driven by domestic demand and is on track to grow within the projected 4.0-4.5 per cent amid a challenging global environment," Central Bank governor Muhammad Ibrahim told a press conference.

In January, the government revised its 2016 growth projection to 4.0-4.5 per cent from the initial 4.0-5.0 per cent, on expectations of a sustained slump in global crude prices.

The current account surplus narrowed to RM1.9 billion in the second quarter, down from RM5 billion in the first quarter, due to a smaller trade surplus and higher net income payments, the central bank said.

Second quarter growth was propped up by solid expansion in domestic demand, and private investment grew 5.6 per cent from a year earlier, against 2.2 per cent in the previous quarter.

Private consumption in Q2 grew by an annual 6.3 per cent versus 5.3 per cent in Q1, supported by continued wage and employment growth as well as increases in disposable income.

The ringgit has strengthened about 7 per cent this year after a grim 2015 when it plummeted more than 20 per cent against the US dollar on the collapse of global crude prices, slowing demand from top-trade partner China and a financial scandal tied to state-owned 1Malaysia Development Berhad (1MDB).

Overall, the ringgit depreciated by 2.5 per cent against the dollar in the second quarter, the central bank said.