Malaysia trims economic sails in wake of oil price rout

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KUALA LUMPUR: Malaysia trimmed its 2015 growth forecast Tuesday and said its fiscal deficit would be wider than expected after the sharp fall in global oil prices threw a wrench in the petroleum-exporting nation’s economic plans.

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Prime Minister Najib Razak called the situation a “reality check” but assured Malaysians the country was not in trouble, unveiling measures he said would keep Southeast Asia’s third-largest economy moving forward.

“We are not in crisis. Indeed, we are taking pre-emptive measures following the changes in the external global economic landscape which are beyond our control,” Najib said in a nationally televised address.

Najib said the government had lowered its economic growth estimate to a 4.5-5.5 percent range, from an earlier projection of up to 6 percent.

The target for reducing the fiscal deficit was also tempered to 3.2 percent of GDP, from an earlier 3.0 percent target stated in a 2015 budget tabled three months ago.

Malaysia derives 30 percent of state income from energy exports, and the more than 50 percent drop in world oil prices has dragged the ringgit currency to around six-year lows and rattled investors.

The stock market has stumbled and business confidence has slid, according to surveys, and pressure had been growing on Najib to act to address the growing unease.

Many consumers complain of increasing difficulty making ends meet, particularly after a range of subsidies were lifted recently on key goods, and with the introduction of a 6 percent consumption tax looming on April 1.

 

Boosting business, cutting costs

 

Najib announced steps to promote trade, tourism, investment, and domestic consumption while also reducing business costs, and said hundreds of millions of dollars would be allocated for recovery efforts in parts of northern Malaysia devastated by floods that began late last month.

Najib said government spending also would be trimmed, but not the 48.5 billion ringgit ($13.4 billion) budgeted for development expenditures including a slew of large infrastructure projects considered key to keeping the economy humming.

The World Bank recently shaved its GDP growth forecast for Malaysia to 4.7 percent from an earlier 4.9 percent, still enviable but off the historic pace for the Southeast Asian “tiger” economy.

But analysts say Malaysia should weather the storm because, with a thriving manufacturing sector, it is less dependent on energy than some other exporting countries like hard-hit Russia.

They say the ringgit and overall economic outlook should stabilise once oil prices find steady ground.

“These new budget measures have been long-awaited. It should allay fears over the health of the economy,” said Manokaran Mottain, chief economist for AllianceDBS Research.

Najib said the depressed ringgit would make Malaysian exports more competitive overseas, and that the situation would be helped by an improving economic picture in key export markets such as the United States.

State energy firm Petronas provides about 30 percent of Malaysian government revenue, pumping in 68 billion ringgit in 2014.

But it warned late last year it could slash its contribution by as much as 37 percent in 2015 due to the oil rout.

The economic uncertainty caused two of Malaysia’s leading financial institutions — CIMB and RHB Capital — to last week call off a planned merger that would have created the country’s largest bank by assets. AFP

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