Malaysia economy struggles in multiple cross-currents

KUALA LUMPUR-Malaysia continues to be caught in domestic and external cross-currents from reduced oil-related activity, lower domestic demand and tighter fiscal spending confronting the local economy.

Tighter liquidity in Malaysia’s banking system, evident in moderation of broad money growth and rising funding costs, could also constrain economic growth, according to ANZ Bank, which says the Malaysian ringgit – as a barometer of market sentiment - is still suffering from a confidence deficiency which risks overshadowing its still-firm fundamentals. 
Growth moderated to 4.7% y/y in Q3, compared to 4.9% in the previous quarter. Domestic demand eased amid moderations in private consumption expenditure (+4.1% y/y in Q3 vs +6.4% y/y in Q2) and government spending (+3.5% y/y in Q3 vs +6.8% y/y in Q2).
The current account surplus has narrowed to MYR5.1bn in Q3 from MYR7.6bn in Q2. ANZ says tThe current account will face headwinds from lower LNG prices which usually track Brent crude prices, albeit with a lag of four to six months. “Structurally lower oil prices will have a knock-on impact on the trade balance.”
ANZ continues to expect Bank Negara Malaysia (BNM) to keep rates on hold, remaining firmly in wait and see mode.
“Easing monetary conditions while allowing currency weakness may appear to be an attractive orthodox policy when growth momentum ratchets lower, especially when counter-cyclical fiscal policy is constrained by soft energy prices and 1MDB concerns.
“However, monetary easing will further weaken the currency and possibly exacerbate capital outflows.”  www.live.anz.com (ATI).