Malaysia's economy grew by 4.5 per cent in the fourth quarter of 2016 as compared to 4.3 per cent in the previous quarter, underpinned by continued expansion in private sector expenditure.

Bank Negara Malaysia (BNM) in a statement said, domestic demand expanded at a more moderate pace, as the improvement in private consumption and investment activity was more than offset by the decline in public expenditure.

In the last quarter, private consumption grew by 6.2 per cent, supported by continued wage and employment growth while private investment registered a growth of 4.9 per cent, following continued capital spending in the services and manufacturing sectors.

Inflation slightly higher

Inflation, as measured by the annual change in the Consumer Price Index (CPI), increased to 1.7 percent in the fourth quarter of 2016 as compared to 1.3 percent in the third quarter, driven mainly by upward adjustments to domestic fuel prices during the quarter.

In the same quarter, the current account surplus widened, due mainly to a higher trade surplus and narrower deficits in the income accounts, said BNM.

Ringgit continues to depreciate

Bank Negara said the ringgit and all major and regional currencies depreciated against the US dollar during the quarter.

The depreciation was driven mainly by portfolio investment outflows from emerging economies amid uncertainties arising from the outcome of the US Presidential Elections.

Expectations of an interest rate increase, the actual increase in the US Federal Reserve’s policy rate in December 2016, and the anticipation of a faster pace of US interest rate normalisation in 2017, exacerbated portfolio outflows and exerted further downward pressure on most major and regional currencies.

The ringgit also faced additional adjustments during the quarter following speculative activity in the non-deliverable forward (NDF) market.

The ringgit, along with regional currencies, however, began to stabilise towards the end of the quarter amidst higher stability in the global financial markets.

The implementation of measures to develop, deepen, and address the rising imbalances in the domestic foreign exchange market, and the firmer global crude oil prices, also lent stability to the domestic foreign exchange market towards the end of the quarter.

Overall Bank Negara said, the ringgit depreciated by 7.6 per cent against the US dollar during the quarter.

Domestic demand will remain the key driver of growth

Going forward BNM said, private consumption is anticipated to remain supported by wage and employment growth, with additional impetus coming from announced Government measures to support disposable income of households.