Photographer: Sanjit Das/Bloomberg

Malaysia’s Growth Slows as Pressure to Add Stimulus Increases

  • Central bank surprised market with interest-rate cut in July
  • Government expects economy to grow between 4% and 4.5% in 2016

Malaysia’s economic growth slowed for a fifth quarter, adding pressure on policy makers to increase stimulus and spur consumption amid tepid global demand.

Gross domestic product rose 4 percent in the three months through June from a year earlier, after climbing 4.2 percent in the previous quarter, Bank Negara Malaysia said Friday. That matches the median estimate in a Bloomberg News survey.

Malaysia’s expansion in 2016 is projected to be at the slowest pace in seven years amid falling oil income and weaker exports, and a renewed slump in crude risks worsening revenue. The central bank unexpectedly cut interest rates last month, and 2nd Finance Minister Johari Abdul Ghani has said the government is studying its capacity to add stimulus and support the economy with plans to be unveiled during the annual budget in October.

“It’s a moderating trend, but it looks manageable,” Julia Goh, an economist at United Overseas Bank Ltd. in Kuala Lumpur, said of growth before the announcement. The central bank will “probably wait and see for now, and then after the budget, reassess in the final meeting this year, in November, whether there’s a need to cut further.”

Weakest Performer

The ringgit was little changed at 4.0065 a dollar as of 11:55 a.m. in Kuala Lumpur Friday. The Malaysian currency has declined about 0.7 percent in the past month, the weakest performer in Asia after it gained the most in the first three months of 2016.

While the ringgit will continue to face volatility amid global uncertainties, Malaysia’s "sound economic fundamentals" will provide medium-term support for the currency, Governor Muhammad Ibrahim told reporters in Kuala Lumpur on Friday.

The central bank cut its benchmark overnight policy rate by 25 basis points to 3 percent last month, a decision that surprised all but one economist surveyed by Bloomberg. Earlier this year, it lowered the amount of cash that banks must set aside as reserves to boost funds in the financial system.

The economy is projected by the government to expand 4 percent to 4.5 percent this year. While global uncertainties may weigh on Malaysia’s growth in the second half, that could be countered by higher civil servant wages, infrastructure projects and better commodities production, the governor said Friday.

Muhammad has said the rate cut last month was a preemptive move to ensure the economy expands within forecast. Bank Negara will assess data when deciding on monetary policy, he said Friday. Malaysia’s inflation risk is declining but the threat to growth has increased, the governor said.

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