Growth affected by challenging external environment, disruptions in commodity-related sectors and contraction in public investment
by NG MIN SHEN & ASILA JALIL / pic by MUHD AMIN NAHARUL
MALAYSIA’S economy grew 3.6% in the fourth quarter of 2019 (4Q19), the lowest since the global financial crisis a decade ago, attributed mainly to the supply disruption in the agriculture and mining sectors.
The lower figure also dragged the overall GDP growth for 2019 to 4.3% (2018: 4.7%), which is still within the central bank’s forecast, but at the lowest end of its 4.3%4.8% projection.
It is also far below the government’s estimate of 4.7% for the full year.
“Growth was affected by the challenging external environment, disruptions in commodity-related sectors and contraction in public investment activity,” Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus told a press briefing in Kuala Lumpur yesterday.
The GDP figures for both 4Q19 and 2019 were the lowest for Malaysia since the global financial crisis, she added, with the 4Q19 growth in particular being the lowest since 3Q09.
Oil palm production contracted due to the severe dry weather conditions and fertiliser cutbacks earlier in the year, as natural gas production declined following temporary facility closures.
Crude oil production also remained in a slump despite a gradual recovery from major maintenance work in the previous quarter.
Private consumption rose 8.1%, while private investment climbed 4.2%. The manufacturing and services sectors grew 3% and 6.1% respectively.
Gross exports contracted by 3.3% in 4Q19, while gross imports declined 4%.
According to the central bank, the Covid-19 outbreak is also expected to affect domestic growth, particularly in 1Q20.
Tourism-related sectors are suffering as well, along with the manufacturing segment which is affected by factory closures in China, while other industries such as construction — buoyed by the resumption of large infrastructure projects — will help cushion the blow.
“We are looking carefully at the impact of Covid-19 on the Malaysian economy.
“As the situation is still evolving, the magnitude of the impact will depend on how widespread and prolonged the outbreak is, and the policy responses in respective countries,” Nor Shamsiah said, adding that BNM will release its 2020 growth forecast in March.
She said Malaysia’s economy grew 5.9% during the SARS out- break in 2003 and 5.1% during the Middle East respiratory syndrome coronavirus (MERS-CoV) pandemic in 2015.
“What we’ve seen in the past is there could be a dip in growth, but there will be a sharp rebound after,” Nor Shamsiah said, without confirming if this would be the case for the current Covid-19.
Downside risks to domestic growth in 2020 include the prolonged Covid-19 outbreak, a re-escalation of global trade disputes and supply disruptions in the commodities sector.
Nor Shamsiah added that there is “ample room” for further cuts in the Overnight Policy Rate (OPR), if required, to further buffer the economy, as inflation is still low.
The central bank cut the OPR to 2.75% last month from 3% previously in a pre-emptive move to sustain growth amid price stability.
Nor Shamsiah said BNM has already met with the government to discuss the proposed economic stimulus package to combat the impact of Covid-19.
“The size of it (the package) — you need to balance the growth stimulus and fiscal cause. So, all this will be taken into account when deciding the stimulus package.”
Finance Minister Lim Guan Eng had earlier stated that the stimulus package will be announced by early March.
“There is space” for such a pack- age, Nor Shamsiah said, notwithstanding the government’s fiscal deficit target of 3.2% of GDP for 2020.
She added that current government debt stands at around 52.5% of GDP, and about 61% of GDP including guarantees.
“If you look at the recent International Monetary Fund’s report on Malaysia, it says that their debt sustainability analysis — meaning at what level can the government afford debt — it’s at 70%.
“So, the lower fiscal deficit — the fiscal consolidation exercise the government has embarked on — and still-manageable debt levels do provide the fiscal space to finance the stimulus package.”
The FTSE Bursa Malaysia KLCI closed 8.54 points or 0.55% lower at 1,542.94 yesterday, following the release of Malaysia’s 4Q19 economic data, while the ringgit was 0.08% lower at RM4.1368 against the US dollar.
Meanwhile, the independent review of BNM’s controversial RM2 billion land purchase has been completed.
“We have very strong processes around procurement, so the report highlighted that there are potential areas that BNM can further improve on. That was the focus of the investigation and most of it has been implemented,” Nor Shamsiah said.
These potential areas mostly involve procurement procedures “that would benefit from greater clarity”, she added.
Under the leadership of the previous governor Tan Sri Muhammad Ibrahim, the central bank had purchased a 22.58ha piece of land known as Lot 41 from the Ministry of Finance (MoF) for about RM2 billion, for the relocation and development of educational facilities.
The deal later came under fire when the MoF confirmed that the former government had used funds from the land sale to BNM to pay part of the debts owed by scandal-ridden 1Malaysia Development Bhd.
Reports also alleged that the central bank had overpaid for the land transaction, although BNM said the deal was conducted as an “arms-length” transaction and that the fair value was determined by an independent private sector valuer.