Posted on 15 Feb 2012
Malaysia's economic growth probably cooled as the European debt crisis hurt exports, dragging full-year expansion to the slowest and putting pressure on the central bank to keep interest rates low.
Gross domestic product (GDP) rose 4.8% in the three months through December from a year earlier, compared with 5.8% in the previous quarter, according to the median of 20 estimates in a Bloomberg survey. Malaysia's economy probably grew 5% in 2011, down from 7.2% the previous year, a survey of 18 economists showed.
The slowest growth since an economic contraction in 2009 may prompt Malaysia to keep borrowing costs low, as South-East Asian policy makers from Thailand to the Philippines lower rates to buffer their economies against weakening global demand.
Malaysia, a manufacturing base for companies including Intel Corp, has refrained from easing for the past three years to manage inflationary pressures.
“Malaysia, being among the most open economies in the Asia-Pacific region, still remains vulnerable to the worsening global economic environment,” said Cynthia Kalasopatan, an economist at IdeaGlobal in Singapore.
“We believe that Bank Negara will likely maintain a stand-still stance but has the leeway to cut rates if the global situation worsens.”
The ringgit, the best performing currency in Asia this year after the rupee, has gained more than 4% against the dollar.
The benchmark FTSE Bursa Malaysia KLCI Index has risen about 2% this year, lagging behind most regional markets.
Asia's regional slowdown has seen nations from Japan to Singapore report economic contractions last quarter.
Singapore probably declined 2.3% in the three months through December from the previous quarter, according to the median of nine estimates ahead of final GDP data due Feb 16.
A preliminary government estimate in January showed a contraction of 4.9%.
Indonesia last week joined the Philippines and Thailand in cutting borrowing costs this year as easing inflation gave policy makers scope to support South-East Asia's largest economy.
The International Monetary Fund predicts Malaysia's growth may slow to 4% in 2012, saying that inflation has eased and “remains contained.”
Prime Minister Datuk Seri Najib Tun Razak, who has announced plans to raise civil servants' pay and boost spending on railways and roads to spur growth, expected Malaysia's economy to expand between 5% and 6% this year.
The nation had “resilience” and “enough momentum” for 2012, he said last week.
Malaysia's industrial production growth accelerated in December as manufacturing and electricity output increased.
Inflation slowed to a nine-month low of 3% in December. While inflation had probably peaked, prices remained at a “risk-elevated level” and policy makers must be mindful of conditions, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said last month.
The central bank left the benchmark rate unchanged at 3% for a fourth straight meeting last month, and said the global environment would become “more challenging.” It last raised borrowing costs in May.
Across the Asia-Pacific region, Japan this week reported a fourth-quarter contraction that was worse than economists estimated.
China's exports and imports fell for the first time in more than two years in January, and Premier Wen Jiabao said this week the country needed to start “fine-tuning” economic policies this quarter.
“External headwinds have picked up strongly in the fourth quarter of last year,” said Irvin Seah, an economist at DBS Group Holdings Ltd in Singapore.
“Real export growth is unlikely to pick up significantly until a more pronounced improvement in global outlook materialises.”
