Malaysia’s fourth quarter will be ‘the challenge’ for its economy, says finance minister

The fourth quarter will be “the challenge” for Malaysia’s economy if global headwinds such as Russia’s war on Ukraine and China’s zero-Covid policy persist, said Finance Minister Zafrul Aziz. 

China is Malaysia’s largest trading partner, and disruptions to supply chains and trade will “dampen some of the growth expectations in the fourth quarter of this year for Malaysia,” he said. 

Maybank Investment Banking Group shared a similar view. 

The bank expects that rising inflation and interest rates at home and around the world, together with signs of slowdown in major economies like United States, Europe and China, will start having a “visible impact” on the country’s economy from the fourth quarter onward, said Suhaimi Ilias, group chief economist at Maybank IBG.

Growth momentum for July to September should be strong, but this could be the result of a negative base effect from the same period in the previous year, Zafrul said. 

Malaysia’s gross domestic product contracted in the third quarter of 2021 by 4.5% as a result of a slowdown in all major economic sectors, mainly the manufacturing and services industries, the Department of Statistics Malaysia reported. 

Suhaimi said Maybank IBG expects another quarter of mid-to-high single-digit growth in the third quarter, of around 7.5%, partly because of the low base in the previous year when the economy shrank. 

Despite the challenges ahead, Zafrul said he is confident that Malaysia’s full-year economic growth will meet the government’s forecast. 

“I’m still very optimistic that we will get to the forecast GDP number of between 5.3 and 6.3% … Probably at the top end of that 6.3%,” he told CNBC’s “Squawk Box Asia” on Monday. 

On Friday, Malaysia’s central bank announced that the country’s economy grew by 8.9% in April to June from a year earlier. 

That was fueled by stronger domestic consumption and tourism spending after Malaysia fully reopened its international borders in April, said Zafrul. 

“Domestic consumption has gone strong, much stronger than we expected,” he said. 

Retail spending for the month of June increased by 44% year on year as fiscal stimulus packages from the government and pent-up demand from the pandemic have given consumer spending a boost, Zafrul said.