Malaysian Economic Growth Tumbles to Decade Low

Malaysian Economic Growth Tumbles to Decade Low
February 13, 2020


The Malaysian ringgit declined against the greenback after the data published by the central bank of Malaysia (Bank Negara Malaysia or BNM) indicated that the country recorded its slowest rate of growth in a decade in the fourth quarter. Following the news report, the USD/MYR rallied from a low of 4.1200 to a high of 4.1370.

Malaysia’s GDP (Gross Domestic Product) increased 3.6% y-o-y in 4Q 2019, considerably below the 4.4% growth recorded in the earlier quarter, as per data published by BNM. Economists had anticipated the country to post GDP growth of 4.2%. The reported figure mirrors the weakest economic growth since 2009.

On a Q-o-Q basis, GDP grew 0.6% in the fourth quarter, after growing at 0.9% in the third quarter. In 2019, the economy grew at 4.3%, compared with 4.7% in the previous year. Notably, the full year 2019 economic growth was also the slowest since the worldwide financial crisis in 2009.

BNM further cautioned that economic growth in 1Q 2020 would be negatively impacted by the China coronavirus outbreak. The negative effect is anticipated to be most felt in the tourism-related industry, and also in manufacturing via supply chain interruptions and the expected economic decline in China. Nevertheless, the bank opined that the country’s economy would receive support from private sector activities in 2020.

Nor Shamsiah Mohd Yunus, Bank Negara Malaysia Governor, stated that the central bank has adequate room to implement further easing measures. The Governor said, “We have ample room, inflation is still low.” The bank had slashed its benchmark rate in an unanticipated manner in January.

Prakash Sakpal, an ING economist, believes that the central bank will announce at least two rate cuts, each of 25 basis points, in the policy meetings scheduled in March and May. Sakpal’s forecast is based on the anticipated economic slowdown in the near future.

If Sakpal’s forecast holds true, then it would bring down the interest rate to 2.25%, only 2% below the low recorded during the worldwide financial crisis ten years ago. Mirroring the setbacks in the implementation of the SST, headline inflation fell to 1% in 4Q 2019, from 1.3% in the earlier quarter.

The breakdown of GDP indicates that the service sector remained the key driver of economic growth. The service industry expanded at 6.1% in 4Q 2019, after growing at 5.9% in the earlier quarter. During the same period, manufacturing sector growth declined to 3%, from 3.6% in the previous quarter.

The rebound in the construction industry, which grew marginally by 1%, also aided economic growth in the fourth quarter. The mining and quarrying industry dropped at a slower rate of 2.5%, while farm output declined 5.7%. Private final consumption expenses increased 8.1% in the recent quarter. Likewise, government spending increased 1.3%.

Additionally, gross fixed capital formation recorded a smaller decline of 0.7%. Exports and imports fell 3.1% and 2.3%, respectively. Due to the widening deficit in services account, the current account surplus declined to MYR 7.6 billion, from MYR 11.50 billion in the earlier quarter. In 2019, the current account surplus was MYR 49.70 billion, the highest level in eight years.

The poor Q4 economic growth, weak FY 2020 outlook, and dovish statement by the central bank of Malaysia are anticipated to keep the Malaysian ringgit bearish in the short-term.

myr - technical analysis - 13th Feb 2020

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Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be

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