Malaysia's second-quarter GDP beats forecasts but trade risks cloud outlook

Malaysia’s economy grew faster-than-expected in April-June and became the first Southeast Asian nation to report an acceleration in growth from the previous quarter, driven by stronger consumer spending and palm oil production, reports Trend referring to Reuters.

Central bank data on Friday showed second quarter gross domestic product grew 4.9% year-on-year, beating the 4.8% forecast in a Reuters poll, and faster than the 4.5% pace in the first quarter.

Malaysia’s pickup in growth contrasts with other Southeast Asian economies, which have slowed this year as the U.S.-China trade war hits demand for exports. However, analysts and policymakers caution that increased global risks pose challenges for Malaysia’s outlook.

"Clear downside risks remain on the immediate horizon, stemming primarily from external factors,” Bank Negara Malaysia Governor Nur Shamsiah Mohd Yunus said.

Malaysia’s full-year growth is still expected to come in within the central bank’s 4.3-4.8% target range, but Nur Shamsiah said an escalation in global trade tensions could knock 0.1 percentage point off GDP growth.

Indonesia, the Philippines and Singapore have all reported weaker growth in the second quarter than in the first. Thailand will report April-June data on Monday.

Malaysia’s central bank cut interest rates in May to preempt flagging global demand tied to the trade dispute between the United States and China, which remains a key concern for the trade-reliant economy.

"We are forecasting a further slowdown in global growth over the coming quarters, which would weigh on demand for Malaysia’s exports,” Capital Economics Asia Economist Alex Holmes said in a note after the data. "The recent escalation in the U.S.-China trade war will be another headwind.”

Asked about the possibility of a second interest rate cut this year, Nur Shamsiah said the bank was assessing risks for domestic growth and inflation.

Malaysia’s exports declined 0.2% over the first half of 2019. Malaysia is one of the most vulnerable countries to the U.S.-China trade war, being a large exporter of intermediary goods to China.

The ringgit MYR= fell 1.5% against the U.S. dollar in the second quarter amid a weakening global growth outlook and escalating trade tensions.

The current account surplus narrowed to 14.3 billion ringgit ($3.42 billion) in the second quarter, from 16.4 billion ringgit in the first quarter, separate central bank data showed on Friday.

Headline inflation is expected to average higher in the second half of the year as the impact of tax policy changes lapsed, BNM said.

Inflation has been mild after an unpopular consumption tax was scrapped in June 2018, and amid a government effort to cap domestic fuel prices.