THE Malaysian economy grew 6.2% in the third quarter of 2017, up from 5.8% in the previous quarter, on robust private sector spending and continued export strength. 

Bank Negara governor Muhammad Ibrahim, in the quarterly bulletin today, said the country was on track to record 5.2% to 5.7% growth for 2017 on the back of improving domestic demand, supported by new and ongoing infrastructure projects and strong exports. 

Export levels were partly offset by faster expansion in imports while demand growth was anchored by private sector spending. 

Trade balance widened to RM26.7 billion from RM24.1 billion the previous quarter. Headline inflation declined 3.8% from 4.0% the previous quarter on lower transport inflation.

BNM reported continued expansion in all economic sectors: services, manufacturing, mining, agriculture, and construction. 

Private consumption expanded by 7.2%, lifted mainly by a better labour market condition and private sector wage growth which increased 7.3% in October. 

The  economy is also buoyed by further expansion in the global economy, where growth in the advanced economy was buoyed by consumption and investment.

However, BNM reported consumer sentiments had yet to recover to its “optimism threshold” at 77.1. The threshold, marked at 100, was last reached in October 2014. 

Weighing on consumer sentiments are sustained cost of living pressure, concerns over employment opportunities, and debt obligations.

While income growth has increased, wage levels remain low amid higher expenditure, BNM reported.

“The economic expectation is positive and the inflation (range) is within what we expected. That gives us a bit of possibility to adjust monetary policy,” said Muhammad.

Muhammad said he expected the full-year inflation rate to be “at the upper end” of between 3 and 4%, depending on global oil prices. 

Headline inflation moderated to 3.8% in the third quarter of 2017, due mainly to lower transport inflation at 11.7%. 

Core inflation in the third quarter was 2.5%

“If there’s a spike, the inflation rate will go up again,” Muhammad said. 

He added any adjustment the central bank might make would not be “a tightening, but rather a normalisation of interest rate.” 

“US authorities have indicated very clearly that normalisation is continuing. The Bank of England and the (US Federal Reserve) have adjusted monetary policy. But if you’re in a position of strength, and our growth is quite strong, we have more flexibility in our options.”

BNM reported that although domestic fuel prices trended upward during the quarter due to rising global oil prices, domestic fuel prices averaged slightly lower compared with the previous quarter. 

In the third quarter, RON95 petrol prices were recorded at RM2.09 per litre compared with RM2 per litre the previous quarter, BNM reported.   

BNM also reported that improving labour market conditions supported growth. Private sector wage growth was sustained at 7.3% while employment growth saw some improvements at 2% growth compared with 1.8% the previous quarter. 

Labour force expansion was relatively matched by net employment gains resulting in a stable unemployment rate of 3.4%, BNM reported. 

The current account surplus widened to RM12.5 billion from RM9.6 billion in the second quarter, accounting for 3.7% of the gross national income (GNI), BNM reported.  

This was due primarily to a larger goods surplus which offset the higher deficits in the income accounts and sustained deficit in the services account. 

The financial account registered a net outflow of RM1.2 billion in the third quarter compared with RM7.3 billion the previous quarter, as higher inflows of long-term foreign direct investments (FDI) and sustained foreign inflows into domestic portfolio assets were offset by portfolio investments aboard by residents and outflows arising from banks’ liquidity and treasury management operations. 

Malaysia’s external debt edged lower to RM873.8 billion from RM877.5 billion in the second quarter, or 65% of GDP as of end-September 2017. The lower external debt largely reflects the repayment of maturing interbank borrowing and valuation effects following the strengthening of the ringgit against selected major and regional currencies during the third quaarter.  

“Malaysia’s external debt remains manageable given its currency and maturity profiles, as well as the availability of large external assets,” Muhammad said, adding that more than a third of the total external debt is denominated in ringgit. – November 17, 2017.