Business

Malaysia cuts 2015 growth forecast on oil price fall

Malaysian Prime Minister Najib Image copyright Getty Images
Image caption Malaysian Prime Minister Najib Razak downplayed worries about a possible recession or economic crisis

Malaysia has cut its annual growth forecast after a sharp fall in oil prices caused the government to revise down its budget plans.

Asia's biggest oil producer now expects its economy grow by 4.5-5.5% this year, down from a previous estimate of 5-6%.

The fiscal deficit will also be larger at 3.2% of gross domestic product.

Malaysia's revenues have been hit hard by the collapse in crude prices, which have halved as a result of a supply glut and the weak global economy.

Its currency, the ringgit, has lost about 10% of its value against the US dollar in recent months as dwindling investor confidence has led to capital outflows.

The country is also struggling with one of the highest levels of household debt in Asia, rising prices and a large current account deficit.

However, Prime Minister Najib Razak downplayed concerns that the country could face a possible recession or economic crisis.

"The government has been vigilantly monitoring the situation," he said in a nationally televised address.

"We are not in crisis. Indeed, we are taking pre-emptive measures following the changes in the external global economic landscape which is beyond our control."

"This is to ensure that our economy continues to attain a respectable and reasonable growth."

Crude concerns

Image copyright AFP
Image caption Malaysia is South East Asia's third-largest economy and a major oil producer

South East Asia's third-largest economy is a major exporter and producer of petroleum products, mainly through state-run energy group Petronas.

Mr Najib, who is also the finance minister, said the revised budget assumed that crude oil would trade at about $55 a barrel.

The previous budget announced in October had been calculated on a price of $100 a barrel, now deemed "no longer realistic".

However, some analysts are forecasting that oil prices could fall further to trade below $50 a barrel, which would strain Malaysia's finances further.

Speaking from the administrative capital of Putrajaya, Mr Najib said "the government has consistently reiterated that crude oil prices are beyond its control", adding that that prices are expected to take quite a while to stabilise.

Budget measures

The government plans to cut spending this year by about $1.5bn by limiting the amount available for overseas government travel, military programmes and energy subsidies.

However, it will channel millions towards flood relief efforts in several states including Kelantan, Terengganu, Pahang, Kedah and Perak.

Last year, the country encountered its worst flooding in a decade, which killed more than 20 people and displaced hundreds of thousands of people.

Other measures in the revised budget included getting government-linked companies to invest more domestically and maintaining cash handouts for poor families.

The government also reaffirmed its plans to implement a 6% goods and services tax from 1 April in order to reduce the fiscal deficit.

Rahul Bajoria, an economist at Barclays Research, said the "announced targets are achievable, provided Malaysia's growth does not slow significantly".

Related Topics

More on this story