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The economy in the second quarter was driven by private-sector activities, such as this furniture manufacturing factory in Muar, Johor. FILE PIC

THE country’s economic data for the second quarter of this year is out. The gross domestic product of 4.5 per cent is below expectations and lower than that of the first quarter.

Indeed, it is much less than the corresponding quarter last
year and other regional peers as well.

While this figure shows the slowest growth momentum since the fourth quarter of 2016, it is important to note that the April-June period this year was when Malaysia saw a change in the government for the first time in its history.

Hence, the moderate growth is expected.

After the 14th General Election, many economic activities had slowed down, or even stalled, as many investors adopted a wait-and-see attitude.

The economy, despite being hit by commodity production shocks, was driven by private-sector activities, both consumption and investment.

Consumer and business sentiments have been improving from the previous quarter, reflecting the zero-rated Goods and Services Tax, but prices may go up once the Sales and Services Tax kicks in next month.

The data shows worrying signs, such as the narrowing of the current account surplus to RM3.9 billion from RM15 billion in the previous quarter.

This may heighten the risk of a twin deficit in the not-so-distant future.

Plus, the increase in the outflow of portfolio investment from net outflow of RM38.3 billion, from RM2.6 billion in the first three months of this year, could spook investors into a bear territory.

On the supply side, the services, manufacturing and construction sectors recorded an expansion, whereas mining and agriculture saw a contraction.

The services sector has a growth rate of 6.5 per cent, the same as the first quarter this year, but manufacturing and construction grew at a slower pace than the previous quarter, at
4.9 per cent and 4.7 per cent, down from 5.3 per cent and 4.9 per cent.

Bank Negara has downgraded its projection for this year to five per cent from 5.5 to six per cent.

Five per cent is a respectable number, and shows that Ma-laysia’s economic fundamentals are on a strong footing.

What’s more, it has, to a greater extent, ruled out the possibility that the economy is going into a recession or crisis.

But there is concern about the economy in the second half of this year. The main one would be the trade war between the United States and China.

Malaysia must prepare for risks from the trade war, including its impact on our growth and certain sectors, such as electrical and electronic, and finance.

One move would be to respond in a collective manner rather than individually.

This can be done by strengthening ties with Asean countries via the Asean Economic Community. A meeting must be held to discuss measures to cushion the impact.

The other issue is the impact of Turkey’s economic crisis.

The Turkish lira is in a free fall and is affecting emerging markets, Malaysia included, as shown by the weakening of the ringgit.

More measures and monitoring, especially of the value of the ringgit against the greenback, are needed.

The government should formulate a plan of where it wants to take the economy.

This is not just to boost investor confidence and attract foreign direct investment, but also to show that the rising cost of living can be managed, especially with the Sales and Services Tax.


Associate professor of Economics, School of Economics, Finance and Banking, Universiti Utara Malaysia

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