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Mahathir Faces Headwinds as Q2 Growth Falters

Annual expansion in the second quarter fell to 4.5%.Annual expansion in the second quarter fell to 4.5%.

Malaysia cut its full-year growth forecast and reported much slower second-quarter expansion, as the country reviews megaprojects and tackles a massive debt left by the previous government.

Weaker growth figures were expected, analysts say, due to global uncertainties and questions raised by Mahathir Mohamad’s stunning election win in May that ended six-decade-long single party rule in Southeast Asia’s third-largest economy, Reuters reported.

Slower growth also signals the economic risks facing the 93-year-old Mahathir, who was premier from 1981 to 2003 and now has been back in the job for 100 days.

Annual expansion in the second quarter fell to 4.5%, well below January-March’s 5.4% and a Reuters poll forecast for 5.2%.

Bank Negara Malaysia, the central bank, blamed the fall partly on commodity production “shocks.” The second quarter had the slowest growth since October-December 2016.

Mining contracted “due mainly to unplanned supply outages, while the agricultural sector was affected by production constraints and adverse weather conditions,” BNM said. The bank lowered its 2018 growth projection to 5% from between 5.5% and 6%.

Given the first half results, “it’s hard to keep to the previous [growth forecast] numbers,” said Brian Tan, an analyst at Nomura.

Friday’s gross domestic product announcement was Governor Nor Shamsiah Mohd Yunus’s first since taking over in late June as part of a high-level management shakeup by Mahathir. “The second quarter of 2018 was an eventful quarter,” she told reporters. “For some, it will be remembered for the 14th general election, the beginning of a one-off tax holiday and significant improvement in consumer and business sentiments.”

The ringgit has been depreciating since April, but is still emerging Asia’s strongest-performing currency this year, shedding about 1.4% against the dollar.

Also on Friday, BNM relaxed currency conversion rules, saying it would no longer force exporters to convert proceeds into ringgit and will allow flexibility for hedging.

Prakash Sakpal, Asia economist at ING in Singapore, said the desired effect of Friday’s steps is to weaken the ringgit and protect against fallout from the trade war between the United States and China, which is Malaysia’s biggest trading partner. “They are relaxing the export controls, so that should cushion some of the impact from the trade war,” he said.

 

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