Malaysia’s Economic Growth Slows on Weaker Exports (Update1)

Malaysia’s Economic Growth Slows on Weaker Exports (Update1)

By Stephanie Phang

Nov. 28 (Bloomberg) -- Malaysia’s economy expanded at the slowest pace in three years as the global recession hurt manufacturing and cooled exports.

Southeast Asia’s third-largest economy grew 4.7 percent in the quarter ended Sept. 30 from a year earlier, down from a revised 6.7 percent gain in the previous three months, the central bank said in Kuala Lumpur today. Economists were expecting a 4.5 percent increase.

Growth eased “amid the sharp deterioration in the global economic and international financial environment,” Bank Negara Malaysia Governor Zeti Akhtar Aziz said in Kuala Lumpur today. “While this more challenging period is expected to see a moderation in growth, the economy will continue to expand.”

Malaysia this month cut interest rates for the first time since 2003 and announced a 7 billion ringgit ($1.9 billion) spending plan to bolster domestic demand as recessions in the U.S., Japan and Europe hurt exports of made-in-Asia Intel Corp. chips and other goods. Easing inflation amid slowing growth may lead to further cuts in borrowing costs, economists say.

“Exports are losing traction with global demand for electronics slowing and falling commodity prices,” said Lee Heng Guie, chief economist at CIMB Investment Bank Bhd. in Kuala Lumpur. “What would keep the economy up will depend on consumer spending and government pump priming. You will have more substantial monetary easing on all fronts.”

Global Recession

The pace of growth in Asian economies will probably ease “substantially” as the global slowdown erodes demand for their exports and banks restrain lending amid the credit crunch, the International Monetary Fund said Nov. 24. The slump has prompted policy makers from China to the U.S. to cut interest rates and announce spending packages to sustain growth.

Bank Negara cut its overnight policy rate by a quarter of a percentage point to 3.25 percent on Nov. 24 and lowered the amount of money lenders need to set aside as reserves to support economic growth. The benchmark rate will probably fall to 2.75 percent by March, according to Aseambankers Malaysia Bhd., JPMorgan Chase & Co. and HSBC Holdings Plc.

Finance Minister Najib Razak announced the public spending program on Nov. 4 as he predicted economic expansion would slow to an eight-year low of 3.5 percent in 2009 amid the worst global financial crisis since the Great Depression.

Public Discontent

Najib, who is also deputy premier, is due to replace Prime Minister Abdullah Ahmad Badawi next year as head of the ruling coalition, and needs to prevent the economic slowdown from fueling public discontent after the government suffered its worst election result in half a century this March.

“Slowing global growth and the flight to safety in financial markets hurt the Malaysian economy,” said Nikhilesh Bhattacharyya, an economist at Moody’s Economy.com in Sydney. “Recessions in Japan, the EU and the U.S. are wounding the manufacturing sector, which employs around 18 percent of the workforce.”

Sales by U.S. electronics makers in Malaysia will fall this year and next and the manufacturers will probably have to cut jobs in 2009, Wong Siew Hai, chairman of the American Malaysian Chamber of Commerce’s 17-member electronics industry group said this week.

Eng Teknologi Holdings Bhd., the Malaysian maker of hard- disk drives whose clients include Western Digital Corp., said this week orders in the first half of 2009 may fall as much as 20 percent. Genting Bhd., Asia’s largest listed casino operator, slipped into losses last quarter and said the rest of the year will be “challenging” amid the global economic slowdown.

“This is not the time to talk about expansion,” said Poh Kim Seng, chief executive officer of MS Elevators Sdn., which makes lifts for export to more than 20 countries. “We’re talking today about consolidation.”

Malaysia’s manufacturing industry grew 1.8 percent in the third quarter, slowing from a 5.6 percent gain in the previous three months. Exports of goods and services increased 5.1 percent, from 9.7 percent in the second quarter.

To contact the reporter on this story: Stephanie Phang in Kuala Lumpur at sphang@bloomberg.net Last Updated: November 28, 2008 05:17 EST