Malaysia’s economic growth in the first quarter slowed down to 4.2% from Q4 2015’s 4.5% growth. Gross fixed capital formation decelerated markedly. It grew 0.1% y/y as compared with the growth of 2.7% registered in the last quarter of 2015. Meanwhile, private consumption grew strongly by 5.3% y/y as compared with 4.9% y/y growth seen in Q4 2015.

However, Malaysia’s current account surplus narrowed by MYR 5.5 billion from previous quarter’s MYR 10.5 billion. The current account is expected to be challenged by headwinds in the future from lower LNG prices. Structurally, the trade balance will be affected by lower crude oil prices. Meanwhile, the financial account registered net inflow of MYR 5.8 billion in Q1 2016.

Overall, risks this year are tilted towards disappointing growth and fiscal slippage, with secondary concerns of inflation pressures. Subdued oil prices indicate that the country will face considerable fiscal and growth headwinds.

The first quarter growth of Malaysia slowed due to declining gross fixed capital formation and exports. Strong private consumption is unlikely to be sustained because of subdued sentiment and weaker wage growth. Domestic and external demand is expected to continue to be subdued amidst tighter credit conditions and fiscal tightening in the near term, said ANZ in a research report.

“We expect BNM to maintain the overnight policy rate (3.25%) and statutory reserve requirement rate (3.50%) at Datuk Muhammad Ibrahim’s maiden meeting as Governor on 19 May”, added ANZ.