KUALA LUMPUR • Malaysia's annual economic growth slowed to 5.4 per cent in the first quarter of this year, leaving the country's new government with the task of turning around an economy that has decelerated for two consecutive quarters.
Releasing the latest gross domestic product data yesterday, the central bank said domestic demand would help growth stay favourable, though the January-March performance was below a median forecast of 5.5 per cent given by a Reuters survey of economists.
The slowdown comes amid uncertainty over economic policies of the new administration of Tun Dr Mahathir Mohamad, 92, who led an opposition alliance to a surprise win over his scandal-tainted former protege Najib Razak and a Barisan Nasional coalition that had led the country for six decades.
During his first week back in office, Tun Dr Mahathir announced moves to effectively scrap a goods and services tax (GST) - a significant source of government revenue - reintroduce a sales tax, and review various projects signed off by the previous government.
Dr Mahathir has also promised to reintroduce fuel subsidies, adding to concerns that populist policies could hurt economic growth and weaken the government's fiscal strength.
Bank Negara Malaysia governor Muhammad Ibrahim said that scrapping GST would impact inflation, but it was too early to say by how much. The central bank projected headline inflation averaging 2-3 per cent this year, up from 1.8 per cent in the first quarter.
Monetary policy would remain accommodative, the governor said, adding that it is premature to judge how the new government's policies would effect economic growth.
"Although 5.4 per cent is slightly lower than official projection of 5.5-6.0 per cent (growth in 2018), GDP growth is expected to remain favourable going forward," he said.
The ringgit suffered a brief wobble following the shock election result, but it has since stabilised, and Mr Muhammad said it should reflect fundamentals in the medium to long term.
Yesterday's data also showed Malaysia's current account deficit widened to RM15 billion (S$5 billion) in the first quarter from RM13.9 billion in the previous three months.
Datuk Seri Najib oversaw an economy that put in its best performance in three years last year, though the latest data shows a loss of momentum during the six months through March. Growth decelerated from 5.9 per cent in the fourth quarter of 2017 and 6.2 per cent in the third quarter, its strongest showing in three years.