Malaysian Growth Is Rapidly Slowing

Forex News

Malaysian Q1 annual economic growth fell to 5.4%, putting pressure on its new government. The growth is slowing with an extreme speed, but the country’s Central Bank claimed domestic demand would help growth stay favorable.

Such a downturn is likely to be caused by political uncertainty over the new administration of Mahathir Mohamad, a 92-year-old leader of an opposition alliance. Mahathir was planning to scrap a GST (products and services tax), to reintroduce a sales tax, review various projects that were rejected by the previous administration and to reintroduce fuel subsidies, causing concerns that such a populist move will harm the economy. Muhammad Ibrahim (Bank Negara Malaysia Governor) claimed scrapping GST would definitely influence the inflation. Headline inflation is expected to average 2-3% this year.

Monetary policy isn’t expected to change. Bank Negara Malaysia Governor says: "Although 5.4 percent is slightly lower than official projection of 5.5-6.0 percent (growth in 2018), GDP growth is expected to remain favorable going forward, driven by continued strength in domestic and global demand".

Meanwhile, Malaysia's Q1 current account deficit extended from 13.9 billion ringgit to 15.0 billion ringgit, in other terms 3.78 billion dollars, within the period of February-April. Muhammad Ibrahim stated that the central bank could reopen investigations into 1MDB (state fund 1Malaysia Development Berhad) if there were any new details.