Home / Politics / Policy /  Malaysia cuts 2013 growth forecast

Kuala Lumpur: Malaysia cut its forecast for growth this year after second-quarter expansion missed economists’ estimates, adding pressure on policy makers to bolster confidence as the ringgit weakens.

The economy may expand 4.5% to 5% in 2013, from a previous prediction of as much as 6%, the central bank said in Kuala Lumpur on Wednesday. Gross domestic product rose 4.3% last quarter from a year earlier, after gaining 4.1% in the previous period, it said.

Malaysia was swept along in the regional turmoil this week, as the prospect of reduced US monetary stimulus and Asia’s faltering growth outlook fuelled a selloff of emerging-market stocks and currencies. The current-account surplus fell to 2.6 billion ringgit ($790 million) last quarter as exports slumped, a decline that could pressure the ringgit.

“If the current account continues to worsen, the authorities may have to respond via tightening, cutting fuel subsidies, or pacing investments at a more sustainable rate to stem further deterioration," Chua Hak Bin, an economist at Bank of America Corp. in Singapore, said before the announcement. “Growth will have to slow as a result."

The expansion last quarter was lower than the 4.7% median estimate in a Bloomberg News survey of 22 economists. The current-account surplus was the smallest since at least early 1999, according to data compiled by Bloomberg, and compared with the median estimate of 900 million ringgit in a separate survey.

Ringgit depreciation

The ringgit has depreciated about 7% this year, the fourth-worst performing currency in a basket of 11 major Asian currencies tracked by Bloomberg. The stock gauge FTSE Bursa Malaysia KLCI Index has fallen 3.6% since closing at a record on 24 July.

The surplus is narrowing on increased overseas investment and property buying, higher imports for infrastructure projects, lower palm oil and rubber export prices and the acquisition of new aircraft by Malaysian Airline System Bhd, Abdul Wahid Omar, minister in the Prime Minister’s Department in charge of economic planning, said in an interview on Tuesday.

Malaysia and Thailand may be the most vulnerable after India and Indonesia, with the former facing a deteriorating current-account balance and elevated foreign ownership of its debt, Credit Suisse Group AG said. Analysts at Barclays Plc are recommending bond investors hold underweight positions in Malaysia, pointing to weak public finances in Malaysia.

Negative outlook

Fitch Ratings last month cut Malaysia’s credit outlook to negative from stable, citing rising debt levels and a lack of budgetary reforms.

Net exports of goods and services slumped 41.6% in the second quarter from a year earlier, after falling 36.4% in the first quarter of 2013, Wednesday’s report showed.

Total consumption rose 8% in the April-June period from a year ago after climbing 6.1% in the earlier quarter. Gross fixed capital formation gained 6%, after an increase of 13.1% in the previous period. Bloomberg

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