Finance Ministry assures economy healthy despite deflation

The economy is not in recession despite deflation being recorded for January, according to Finance Minister Lim Guan Eng.

For the last two quarters of 2018, GDP continued to grow at 4.4 percent and 4.7 percent year-on-year.

Lim explained that the 0.7 percent decline in the consumer price index for last month was not due to weakening demand, since growth was positive.

“Instead, the price decline was largely caused by supply factors in the form of cheaper input costs, specifically cheaper fuel prices.

“This can be seen clearly from public data published by the Statistics Department,” he said in a statement today.

Lim noted that the present situation was “very different” from what the country experienced in 2009, which saw negative GDP growth for three straight quarters before the country experienced deflation.

“It is crucial to highlight that year-on-year price deflation followed soon after the 2009 recession began.

“Furthermore, industrial production declined significantly prior to the recession and the price deflation.

“This means the 2009 deflation was caused by a recession as households and companies tightened their belts significantly.”

As Lim noted, consumers are enjoying cheaper input prices, such as for fuel, compared to a year ago.

This, he added, has increased purchasing power, which will in turn power growth.

“The low inflationary environment has encouraged private consumption to grow at a fast pace of nine percent and 8.5 percent year-on-year in the third and the fourth quarter of last year respectively.”

However, despite slowing inflation figures, Lim said the federal government was aware there was still more work needed to reduce living costs, particularly for the bottom 40 percent (B40) income group.

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