Despite the growing tensions in global trade and the moderation in Malaysia’s economic growth to 4.5 percent in Q1 2019 from 4.7 percent in the previous quarter, Bank Negara Malaysia maintained its baseline projection of 4.3 percent to 4.8 percent growth for the year.
The projection has considered the US-China trade war and the latest tariff increase, according to Governor Datuk Nor Shamsiah Mohd Yunus, reported The Sun Daily.
“We’ve encountered episodes of massive outflows in the past and some of the outflows were unexpected, for example the Taper Tantrum, and yet financial markets remained orderly and the economy continued to grow and the financial sector continued to record profitability,” she said.
“What’s more important is for us to continue to strengthen our fundamentals, be it at the economic level or the export level.”
First quarter growth was underpinned by private sector activity, which was buoyed by firm private consumption growth.
Nor Shamsiah is optimistic that private investments, which declined 0.4 percent, will eventually improve in the coming quarters despite the risks of property overhang, slowdown in global growth and other uncertainties.
Factors that will support overall investment growth include some of the mega projects and the ongoing multi-year projects.
Nor Shamsiah stated that Malaysia would witness the conversion of foreign investment approvals into real investments some time in the year.
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But while Malaysia is set to benefit from the trade diversion, she stressed that it will be not sufficient to offset the contraction in exports.
Overall, domestic demand growth moderated further by 4.4 percent in Q1.
The ringgit, on the other hand, appreciated by 1.4 percent against the US dollar, mainly driven by non-resident portfolio inflows amounting to RM13.5 billion.
Since April, however, the ringgit has depreciated by 2.1 percent against the US dollar, which is in line with most regional currencies.
“In light of the more recent global developments, the ringgit, along with regional currencies, have experienced some volatility and depreciation pressure. This is likely to continue in the near term amid concerns over the global growth outlook,” Nor Shamsiah said.
“Uncertainties surrounding geopolitical and trade developments will also be key factors affecting the ringgit and other regional currencies.”
Image source from Bank Negara Malaysia
