Malaysian economy: a boost for Mahathir, but US-China trade war threatens to spoil Pakatan Harapan’s party

A better than expected first quarter gives the new government cause for celebration

But fears for exports and uncertainties for investors over leadership transition mean it shouldn’t rest on its laurels

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Malaysia's first quarter GDP figures are a boost for Prime Minister Mahathir Mohamad. Photo: AFP

Published: 9:08pm, 16 May 2019Updated: 8:49am, 17 May 2019

News that the Malaysian economy expanded more than expected in the first quarter of the year will be welcomed by the new Pakatan Harapan government – but it shouldn’t get too carried away with the celebrations.

The US-China trade war together with domestic issues such as the expected transition of power from current Prime Minister Mahathir Mohamad to Anwar Ibrahim are among the factors that could spoil the party, experts have warned.

Figures released by the Malaysian central bank on Thursday show the economy grew 4.5 per cent in the first quarter, beating projections of 4.3 per cent. However, the bank cautioned that external factors including the trade war could hit exports and drag on the economy and maintained its projection that full-year growth would be between 4.3 and 4.8 per cent.

Meanwhile, political analysts warned that domestic concerns could also hit investor confidence if the government fails to maintain a strong fiscal policy.

Still, Pakatan Harapan is likely to take some comfort in the figures, which some will see as a validation of its first year in government.

With Malaysia relegated to the World Government Bond Index watch list and grappling with a ringgit on the downtrend against the US dollar, the administration has been widely criticised for failing to rejuvenate a faltering economy.

But it blames many of its problems on the debts it inherited from the Barisan Nasional, which until the watershed election last May had ruled the country since its independence from Britain. Top figures from the Barisan Nasional, including the former prime minister Najib Razak, are currently on trial for corruption.