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Malaysia cuts GDP forecast in sign of Asia stress

August 21, 2013

KUALA LUMPUR, Malaysia (AP) — Malaysia slashed its growth forecast Wednesday, highlighting challenges facing Asian economies as China slows and investors anticipate a scaling back of extraordinary monetary stimulus in the U.S.

Bank Negara Malaysia, the country’s central bank, said it expects the Malaysian economy to grow between 4.5 percent and 5 percent in 2013. The central bank had earlier forecast growth of 6 percent.

The downgrade is the latest sign of stress in Asia’s emerging economies. Thailand earlier this week reported that its economy contracted for a second straight quarter. India and Indonesia are facing sharp declines in their currencies that partly stem from worries current account deficits in those countries are unsustainable.

The U.S. Federal Reserve’s campaign to keep interest rates super low to spur economic recovery initially sent money flooding into Asian markets in search of higher returns. That tide is now ebbing and roiling the region’s weaker economies.

The Malaysian central bank said domestic demand is expected to remain firm but will be offset by a weak global economy. It said the Malaysian ringgit has come under pressure, dropping nearly 7 percent since April.

Malaysia’s economy grew 4.3 percent from a year earlier in the April-June quarter, falling short of the 4.7 percent growth forecast by economists, according to figures released Wednesday.

Slowing growth in China, the world’s No. 2 economy, and expectations the Federal Reserve will soon reduce its monthly purchases of financial assets has led to a flight of money from Asia’s financial markets, Bank Negara said. Those factors along with the high debt burdens of many European countries will drag on sentiment and growth prospects, it said.

Also Wednesday, Thailand’s central bank left its benchmark interest rate unchanged at 2.5 percent despite a weakening economy, showing its limited room for maneuver as speculation over the Fed’s monetary policy stirs regional markets.

Fitch Ratings last month lowered the outlook on Malaysia’s credit rating to negative from stable, citing rising debt and an absence of budgetary reforms.

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