Malaysia's economic growth accelerated in the third quarter to an annual 5.8 percent, helped by domestic demand as the central bank announced a move to widen banks' access to liquidity amid concerns about possible tighter credit conditions in a global slowdown.
Third quarter growth was supported by strong domestic demand, public spending and manufacturing activity and surpassed the 4.9 percent rise forecast by a Reuters poll of economists. Second quarter annual growth was revised to 4.3 percent from 4 percent.
Central bank chief Zeti Akhtar Aziz cautioned on the impact of global uncertainties, with the trade-reliant economy expected to feel the chill from weaker export demand.
"The risk to global economic growth have increased and following developments that have taken place in the third quarter it is very likely that some of the impact of this will be experienced in the fourth quarter...," central bank chief Zeti Akhtar Aziz told reporters.
"However we expect that our domestic economy and domestic demand will continue to sustain its growth." Economists said the central bank had left the door open to an easier policy next year, to support domestic demand as the global environment deteriorates. "I think fiscal pump-priming has really helped to drive growth. The big question is whether this can be sustained," said Hak Bin Chua, an economist with Bank of America Merrill Lynch.
"We're somewhat cautious about the global outlook and we think that Europe will slide into recession starting from this quarter. We are still pencilling in a 50-basis point cut for the whole of next year." Bank Negara left its key interest rate unchanged at 3.00 percent at its last meeting on November 11, but warned of risks to growth from the global weakness.
Malaysia's official economic growth forecasts are 5.0-5.5 percent for 2011 and 5-6 percent for 2012 but some economists have already begin cutting their 2012 forecasts in view of the weakness overseas. A Reuters quarterly poll in late October estimated 2011 and 2012 GDP growth to both record 4.6 percent.
"Given the very recent developments in Europe, even if we have a rate of growth of 5 percent or even the high 4, 4.8 or 4.9 (percent), this will be considered very good growth in such a challenging environment," Zeti said, referring to 2011 growth. Malaysia follows other Asian economies such as Taiwan, South Korea and China which also recently reported a slowdown in their economic growth.
The central bank said it would accept foreign currency denominated securities as collateral for banks to obtain ringgit liquidity from it. At present, only ringgit-denominated securities can be used as collateral. It also said it would create reciprocal bilateral deals with other central banks to enable Malaysian lenders operating in foreign countries to obtain liquidity from the foreign central banks by pledging ringgit denominated securities.
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