The Malaysian economy registered a growth of 4.0% year-on-year in the second quarter of 2016 compared to 4.2% in the first quarter of the year and 4.9% in the second quarter of 2015, according to the country’s central bank.
“Despite the stronger expansion in domestic demand, growth was weighed down by the continued decline in net exports and a significant drawdown in stocks,” said Bank Negara Malaysia (BNM).
The national bank linked the country’s slowing economy to the global trade slump. “In the second quarter of 2016, the global economy expanded at a more moderate pace, with uneven growth momentum across economies.”
It added that growth remained modest in the advanced economies amid continued cyclical and structural weaknesses. In Asia, economic expansion was supported by domestic demand, but was weighed down by persistent weakness in export performance.
“While initial impact from the result of the UK’s EU referendum created uncertainty and heightened risk aversion, financial market volatility has since subsided,” it added.
Private sector activity remained the key driver of growth, expanding at a faster pace of 6.1% in the second quarter compared to the same time last year, and up from the 4.5% growth in the first quarter. On the supply side, all economic sectors continued to expand except for the agriculture sector.
The trade surplus amounted to MYR17.9 billion (US$4.5 billion) in the second quarter of 2016 compared to the first quarter’s MYR23.9 billion. Gross exports recorded a higher growth of 1.4% from 1.0% in the first quarter, driven mainly by a smaller contraction in the growth of commodity exports which offset the slower manufactured export growth.
Gross imports registered a growth of 3.1%, a reversal from the decline of 0.4% set in the first quarter, reflecting mainly higher imports of capital goods and continued growth in imports of consumption goods.
Going forward, said BNM, global economic activity is expected to remain subdued despite the unprecedented easing of monetary conditions in major and regional economies. Expansion in the advanced economies will remain modest, while in Asia, domestic demand will continue to underpin growth. Further bouts of financial market volatility resulting from rising concerns over the U.S. presidential elections and increased risks of political contagion following the UK’s EU referendum could materially affect the markets through international capital flows, it said.
“Overall global economic conditions have become increasingly challenging, with higher downside risks,” the bank stated.
It forecasts the Malaysian economy to advance by 4% to 4.5% for the full year of 2016, mainly driven by domestic demand that is supported by private sector spending. Private consumption is projected to expand further, underpinned by continued growth in wages and employment, as well as additional disposable income from government measures.
While the growth in private investment has moderated, overall investment will remain supported by the implementation of infrastructure development projects and capital spending in the manufacturing and services sectors.
Exports are projected to remain weak given the subdued global demand.
“Overall, while domestic conditions remain resilient, uncertainties in the external environment may pose downside risks to Malaysia’s growth prospects,” concluded the central bank.
Photo: Shook Leng
