Malaysia's Growth Slows as Consumption Levy Weighs on Spendingby
Government projects it will miss trade target this year
New tax contributing to rising costs and poorer sentiment
Malaysia’s economy expanded at the slowest pace in more than two years as private consumption eased, adding pressure on policy makers to bolster growth and boost confidence.
Gross domestic product rose 4.7 percent in the three months through September from a year earlier, after climbing 4.9 percent in the previous quarter, the central bank said in Kuala Lumpur Friday. That matched the median estimate in a Bloomberg News survey.
Prime Minister Najib Razak is counting on domestic demand to shore up a cooling economy as faltering global growth led the government to project it will miss its trade target for 2015. Private spending is also moderating as Malaysians faced a new consumption levy and rising costs, pushing consumer sentiment to below global financial crisis lows and hurting business confidence.
"Lingering effects from the introduction of a goods and services tax in April" kept a dampener on consumption, Emily Dabbs, an economist at Moody’s Analytics in Australia, said before the announcement. "Growth should pick up in the final quarter as domestic demand and export growth strengthen.”
The ringgit fell 0.2 percent to 4.3758 per dollar in Kuala Lumpur as of 11:51 a.m. local time Friday. While it recovered alongside emerging market currencies in October, it’s still down about 20 percent this year, the worst performer in the Asia Pacific region. Global funds have pulled about 33.6 billion ringgit ($7.7 billion) from Malaysian stocks and debt this year.
The central bank kept interest rates unchanged for an eighth meeting this month, even as Malaysia’s biggest trading partners of China and Singapore both eased monetary policy in recent weeks. Bank Negara Malaysia said Friday the current monetary policy stance remains accommodative and supportive of economic activity.
Gross domestic product is forecast by the government to increase 4 percent to 5 percent in 2016, compared with an expansion of as much as 5.5 percent this year. Inflation is projected to rise 2 percent to 3 percent next year, compared with 2 percent to 2.5 percent in 2015. The Malaysian economy is expected to remain resilient amid an increasingly changing environment, Governor Zeti Akhtar Aziz told reporters Friday.
The ringgit remains “significantly undervalued” and risks to economic expansion are unlikely to materialize with exports still strong, Zeti said in an interview this week. The currency may recover when the U.S. Federal Reserve normalizes interest rates and as "domestic issues" in Malaysia are resolved, she said.
Malaysian policy makers have been struggling to boost confidence in the economy and government finances since oil prices started to fall last year and as allegations of financial irregularities at a state investment company hurt sentiment. Najib is also embroiled in a funding scandal with investigators probing how hundreds of millions of dollars in political donations ended up in his accounts in 2013. The accounts have since been closed.
Private consumption expenditure climbed 4.1 percent last quarter from a year ago, easing from 6.4 percent in the previous period.
“We do think private investment is going to slow down going forward,” Rahul Bajoria, a Singapore-based economist at Barclays Plc, said before the announcement. “Some of it is down to the weakness in the currency, which kind of gets people to push out their import intensive investment projects beyond 2016.”