Malaysia’s economy grew at its slowest pace since 2016, underscoring risks that will only heighten this year as the newly installed government of Malaysian Prime Minister Mahathir Mohamad overhauls policy.
Expansion eased to 5.4 percent in the first quarter, lower than the 5.6 percent median estimate in a Bloomberg survey, central bank data released yesterday showed.
Bank Negara Malaysia Governor Muhammad Ibrahim said that the outlook remains “favorable,” even though the number came in lower than the bank’s forecast range of 5.5 percent to 6 percent for this year.
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GDP rose 1.4 percent from the previous three months and private consumption rose 6.9 percent from year ago, supported by rising wages, while exports climbed 5.8 percent and the current-account surplus widened to 4.5 percent of GDP, data showed.
Mahathir, 92, moved swiftly to fulfill campaign promises after last week’s election win, effectively scrapping a goods-and-services tax (GST) without announcing specific measures to recoup revenue losses.
Malaysia was riding an economic boom and financial markets have not suffered the losses of emerging-market peers lately, underpinned by strong domestic spending, an improving budget deficit and a current-account surplus.
“Going forward, second-half growth will be weighed by a high base effect, pending clarity on some of the domestic reform measures by the new government,” said Julia Goh (吳美玲), an economist at United Overseas Bank Ltd (大華銀行) in Kuala Lumpur.
The government must still outline how it will raise enough revenue to fill the GST gap in order to keep the budget deficit under control.
The Malaysian Ministry of Finance yesterday said that the move would be “cushioned by specific revenue and expenditures that shall be announced soon,” with plans also to reintroduce a sales-and-services tax.
The country’s GDP could get a boost of 0.2 to 0.4 percentage points as government policies — such as the GST move, reintroducing fuel subsidies and raising minimum wages — spur consumer spending, Oxford Economics said.
The tax change will also affect inflation and the central bank could change its forecasts later this year, Ibrahim said.
The slowdown in growth is likely to be temporary, Bloomberg economist Tamara Henderson said.
Household spending remained robust and is poised to strengthen further with the scrapping of the GST. Investment, which stalled ahead of elections, should pick up — buoyed by sustained strength in oil prices, less tolerance for corruption and strong onshore sentiment, Henderson said.
A revenue squeeze might prompt the government to cut back on spending, while a review of infrastructure projects could put a halt on construction, curbing growth in the economy.
“It’s encouraging to see that the new government is already taking action to try and rationalize unnecessary and unproductive government expenditure,” Goh said. “We think that would actually help in keeping the fiscal balance in check.”
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