Malaysia’s economic growth eased in the second quarter, the central bank said yesterday, attributing the slowdown to a decline in exports amid subdued global demand.
The economy grew 4% year-on-year in the April to June period, compared with 4.2% in the first quarter and 4.9% in the second quarter of 2015.
It is Malaysia’s slowest rate of expansion since a 1.1% contraction in the third quarter of 2009 during the global financial crisis. “Despite the stronger expansion in domestic demand, growth was weighed down by the continued decline in net exports,” Bank Negara said.
Energy-exporting Malaysia has the third-largest economy in Southeast Asia, but has been grappling with falling oil prices and weak overseas demand – denting revenues and putting severe pressure on the ringgit.
The country has also been rocked by a massive financial scandal amid allegations that billions of dollars were stolen from a state investment fund founded and overseen by the Prime Minister.
In July, Malaysia unexpectedly cut interest rates for the first time in seven years.
The decision to slash borrowing costs by 25 basis points to 3% follows similar moves by Singapore and Indonesia and comes as major central banks around the world look to ease monetary policy to kickstart growth.
Governor Muhammad Ibrahim told reporters that the ringgit would continue to face volatility given global uncertainties, but Malaysia’s “sound economic fundamentals” would provide medium-term support.
The central bank said growth of the economy was expected to be 4 to 4.5% for 2016 – its slowest rate in seven years.
“Domestic demand will continue to be the main driver of growth,” the central bank said.
Kenanga Research economist Wan Suhaimi Saidi told AFP that there could be some “modest growth” in the second half of 2016 following the recent cut in the benchmark overnight policy rate.
“The second quarter growth is within expectation,” he said.
He added however that he did not expect any strong recovery in commodity and oil prices, which are vital foreign exchange earnings for Malaysia and forecast full year growth at 4.3%.