KUALA LUMPUR – Bank Negara Malaysia (BNM) does not expect a global recession to happen this year after the International Monetary Fund’s warning of a sharp slowdown triggered by trade tensions.
In fourth quarter 2018, Malaysia’s economy grew 4.7% driven by resilient private consumption and some recovery from earlier supply disruptions in commodity-related sectors. Overall, the economy grew 4.7% in 2018 supported by resilient private sector spending, lift from net exports and continued expansion in the services and manufacturing sectors.
Speaking to reporters at a briefing on Q4 2018 GDP figures today, BNM governor Datuk Nor Shamsiah Mohd Yunus said global growth is returning to its long-term trend and she does not think that a global crisis will happen.
“Under that situation, with an open economy and having a diversified economic structure, Malaysia will continue to experience quality growth in external demand and that would provide support to growth in 2019,” she added.
In its Q3 bulletin last year, the central bank said trade tensions in the form at that time were expected to weigh down GDP growth this year, by 0.3 to 0.5 percentage points.
“We have not seen that impact from trade tensions. Growth in exports rebounded in Q4 and we are seeing also, within certain segments of the E&E sector, our market share to the US has increased. So there is some sort of trade diversion happening and that has also supported the favourable performance in the external sector,” said Nor Shamsiah.
However, she said there are downside risks which have been imput into BNM’s projections for 2019 which will be announced during the launch of its 2018 Annual Report next month.
She said income growth, amid a stable labour market and policies to buffer the rising cost of living, will drive consumption and lend support to growth.
Malaysia’s current account registered a surplus of RM10.8 billion in Q4 while the full-year current account surplus reached RM33.5 billion.
Headline inflation declined to 0.3% in Q4 mainly due to transport inflation turning negative. In 2018, headline inflation average 1% and it is expected to average moderately higher this year as the impact of the consumption tax policy will start to lapse towards the end of the year.
However, Nor Shamsiah said, underlying inflation is expected to be broadly stable.
She said the total cumulative reserves in terms of foreign currency assets held are enough to buffer any impact of a weaker ringgit on external debt.
“In terms of buffers, we still have current account surplus, excess liquidity in the system and the banks are in a very strong position in terms of the capital that they hold and liquidity that they hold,” she said.
Speaking of the Economic Action Council, Nor Shamsiah said it could look at measures to invigorate private investment such as a review of incentives offered, and issues related to cost of living such as structural issues on how to grow income, policies to lower dependence on foreign workers, and increasing salaries and wages by improving productivity.
On the management changes at Bank Pembangunan, Nor Shamsiah said all development financial institutions (DFIs) face challenges in attracting talent and most of them lack the scale and the diversified nature of operations in order to remain sustainable in the long run.
She said this year, BNM will review the mandates of DFIs to ensure they are able to play their catalytic role in the new economic landscape, and will be engaging with ministries to share its assessment.