Malaysia economic growth hits decade low as coronavirus poses new risks

Full-year growth came in at 4.3 per cent, below the Malaysian government's forecast of 4.7 per cent and the weakest since 2016.
Full-year growth came in at 4.3 per cent, below the Malaysian government's forecast of 4.7 per cent and the weakest since 2016.PHOTO: REUTERS

KUALA LUMPUR (REUTERS) - Malaysia’s central bank said on Wednesday (Feb 12) there was “ample room” to adjust interest rates, after economic growth slowed to the weakest in a decade in the fourth quarter and the coronavirus outbreak threatened to pile on more pressure this year.

“We have ample room, inflation is still low,” Bank Negara Malaysia Governor Nor Shamsiah Mohd Yunus told a news conference when asked about the possibility of a rate cut after the growth figures were released.

The central bank unexpectedly cut its overnight policy rate last month by 25 basis points to 2.75 per cent, the lowest since March 2011.

South-east Asia’s third-largest economy grew 3.6 per cent in October-December from the same period a year earlier, due to lower output of palm oil, crude oil and natural gas, and a fall in exports amid the US-China trade war.

The pace was the weakest since the global financial crisis, well below the 4.2 per cent rise forecast by analysts in a Reuters poll, and slower than 4.4 per cent in the third quarter.

Full-year growth came in at 4.3 per cent, below the government’s forecast of 4.7 per cent and the weakest since 2016.

The coronavirus epidemic in China will put further pressure on the economy this year, particularly in the first quarter, the central bank said after releasing the data. The virus was named Covid-9 on Tuesday.

The Malaysian government, which has forecast the economy to grow at 4.8 per cent this year, is already working on a stimulus package for aviation, retailing and tourism to help cushion the impact.

“The economy is still being supported by very firm private sector spending, and that is a positive development in our economy. More importantly, private investment might turn around,” Nor Shamsiah said.

“But there are downside risks. It’s very difficult 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.”

Malaysia’s economy, like many in Asia, came under heavy pressure last year from the escalating US-China trade war and softening global demand, with the mining sector particularly hard hit.

 
 
 
 

While China and the US agreed a preliminary deal last month, the fast-spreading epidemic has raised fresh global growth risks and heightened expectations of more stimulus in some of the more vulnerable economies. The disease was named Covid-19 on Tuesday.

Capital Economics expects things to only get worse in the first quarter as tourist arrivals plummet due to virus fears. Tourism accounts for 11.8 per cent of Malaysia’s GDP, according to BNM.

Potential disruptions to Malaysia’s manufacturing sector due to factory shutdowns in China and falling oil prices could also drag on growth.

“While there is clearly a great deal of uncertainty, we are pencilling in a slowdown in GDP growth to just 1.5 per cent y/y in Q1 - a much bigger hit to the economy than during SARS,” Alex Holmes, an Asia economist with Capital Economics, said in a note to clients.

However, analysts say growth could snap back quickly if the virus is contained soon, much as it did after Sars.