KONTAN.CO.ID - KUALA LUMPUR. Malaysia's economy grew at its weakest pace in a year in the third quarter hit by sharp falls in exports and mining, fuelling expectations for another dose of policy stimulus from the central bank early next year.

Gross domestic product expanded 4.4% in the July-September quarter, Bank Negara Malaysia (BNM) said on Friday. The pace was as expected but weaker than 4.9% growth the previous quarter.

Growth in Southeast Asia's third-largest economy slowed across all sectors in the third quarter, particularly in mining, which contracted 4.3% compared with a 2.9% expansion in the April-June period, central bank data showed.

BNM Governor Nor Shamsiah Mohd Yunus said growth was expected to rebound in the final quarter of 2019 on a resumption in mining and construction activities and resilient private sector spending, but did not discount a cut to the overnight policy rate if things take a turn for the worse.

"We are not on any preset course," she told reporters. "We continue to monitor external developments and how it affects our outlook for growth and inflation. And we will always be data dependent."

BNM last cut its key policy rate in May to support growth on concerns over slowing global demand and U.S.-China trade tensions.

A U.S. official said on Thursday that the world's two largest economies are getting close to a trade agreement, but that will only help if it is implemented soon, said Julia Goh, a Kuala Lumpur-based economist with UOB Bank.

"If some of the tariffs can be removed within six months, that would pave the way for some recovery in exports. But if they just sign on the dotted line with no sign of where they will go on tariffs, it won't help sentiments," Goh said, adding she expects a rate cut in the first quarter.

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Exports contracted 1.9% in the third quarter versus a 0.4% fall in the previous three months, on weak demand for electrical and electronic shipments and commodities.

Domestic demand also slowed as the full effects of a reinstated sales and services tax kicked in, though it remains resilient and reflects a normalisation in line with BNM's long-term average projection of 7%, BNM's Nor Shamsiah said.

"We are not immune to developments that happen globally because we are such an open economy, but the diversified nature of our exports provide some cushion against external headwinds," she said.

SLOWDOWN TO PERSIST

Nor Shamsiah said they expect growth to remain positive in the fourth quarter, sticking to BNM's full-year forecast of 4.3%-4.8%, and for the pace to sustain going into 2020.

But the broad slowdown indicates that there will likely be no repeat of Malaysia's outperformance over the first half of 2019, said Charu Chanana, an economist with Continuum Economics.

"Trade remains very volatile...industrial production data has been pretty weak, and if we continue to see more weakness there, BNM would be prompted sooner than later to go for another cut," Chanana said.

Last week, the central bank unexpectedly cut banks' statutory reserve requirement to inject liquidity, the first in three years and only days after it left its key policy interest rate unchanged.

The central bank said it was also working on addressing any concerns of FTSE Russell, which in September gave the country at least another six months to escape eviction from its widely-tracked government bond index.

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Nor Shamsiah said the central bank's recent measures had given greater flexibility to offshore investors to hedge positions onshore and that forex transaction volumes were growing and cost of transactions coming down.

The ringgit fell 1.1% against the U.S. dollar in the third quarter, which BNM attributed to heightened risk aversion amid the protracted Sino-U.S. trade war.

Malaysia's current account surplus fell to 11.5 billion ringgit ($2.78 billion) in the third quarter, from the 14.3 billion ringgit in the previous period.

The headline inflation rate came in at 1.3% in the third quarter but is expected to be "low" in 2019, and modest though higher in 2020, BNM said.

Editor: Wahyu T.Rahmawati