Higher Malaysian GDP growth seen in Q4

PETALING JAYA: Malaysia’s economic growth in the fourth quarter of 2018 (Q4’18) could accelerate for the first time in a year, after the country’s gross domestic product (GDP) growth continued to slow down after the third quarter of 2017.

However, the pace of growth for the October-to-December 2018 period may only be marginally higher than the Q3’18 GDP growth of 4.4%, according to pundits.

A Bloomberg survey of 16 economists has predicted a median GDP growth of 4.5% year-on-year (y-o-y) in Q4’18.

The Statistics Department will release the official GDP results tomorrow.

The pick-up in industrial production over the fourth quarter as well as strong exports have hinted at an improved GDP performance in the final quarter.

AllianceDBS Research expects the economy to expand by 4.5% in the fourth quarter, sustained by domestic demand despite the weakening external conditions.

For full-year 2018, Malaysia’s GDP growth is projected at 4.6% compared to 5.9% in 2017.

The research firm said that the manufacturing and services sectors would likely be the drivers of growth in Q4’18.

“The recent release of the Q4’18 industrial production index (IPI) data showed that both IPI growth as a whole (Q4’18: 3.5%) and manufacturing IPI growth (Q4’18: 4.5%) remained resilient, coupled with steady exports growth of electrical and electronic manufactured goods during the same quarter.

“Meanwhile, total manufacturing sales growth remained strong in Q4’18 (8.5%), along with a steady rise in the prices of goods and services (Q4’18: 0.3%), and the labour force participation rate of 68.6% in Q4’18 compared to 68.5% in Q3’18 will keep the services sector as the main driver of growth,” AllianceDBS Research said via an email to StarBiz.

The Statistics Department released the official IPI figures on Feb 11.

Led by a stronger manufacturing sector performance, Malaysia’s IPI for December 2018 rose 3.4%, beating a Bloomberg survey of 2.7%.

The higher industrial production was driven by the rise in the manufacturing index (4.4%), electricity index (2.7%) and mining index (1%).

For comparison, in November 2018, the IPI increased at a slower pace of 2.6%.

When asked whether the country’s agriculture sector could see a rebound in Q4’18 after two consecutive quarters of contraction, AllianceDBS Research said “it is difficult due to the high-base effect”, given the sector’s robust growth in 2017.

Not only that, the agriculture sector’s growth has been interrupted by weaker demand and lower prices of palm oil and palm oil-related products, mainly because of weaker demand from two major importers, namely, China and India.

“The construction sector’s growth would likely remain subdued.

“This is mainly due to the government’s fiscal reforms, which has put several mega-infrastructure projects on hold or deferred, incurring losses to several large domestic construction firms,” it said.

Speaking to StarBiz, Socio-Economic Research Centre executive director Lee Heng Guie projects a 4.7% GDP growth in Q4’18, slightly higher than the think-tank’s earlier estimate of 4.5% to 4.6%.

For full-year 2018, the economy is expected to expand by 4.8%.

Lee said that private sector spending (72.3% of GDP) would be holding the fort, as public sector expenditure continues to be rationalised, focusing on essential sectors and development programmes.

“Both the services and manufacturing sectors would continue to drive the economy, while the drag from the agriculture and mining sectors would be milder compared to previous quarters.

“The construction output would remain moderate on the ongoing implementation of public infrastructure projects amid slower non-residential development,” he said.

Moving forward into 2019, Lee pointed out that the Malaysian economy is expected to face another tumultuous year, as the country is being challenged by ongoing domestic adjustments and also rising external headwinds, particularly lingering uncertainties about the state of the US-China trade disputes and tighter global financial conditions.

“GDP growth is estimated to grow at a gentle pace of 4.7% in 2019, with the risk skewing towards the downside,” stated Lee.

On the current account, United Overseas Bank (Malaysia) senior economist Julia Goh said it is likely to remain in comfortable surplus in Q4’18.

“This is given the positive merchandise trade surplus of RM34.6bil in Q4’18 compared to RM25.2bil in the second quarter.

“Foreign reserves remain resilient at US$101bil while Bank Negara’s short position in foreign exchange swaps had narrowed to US$20.9bil as at end-December 2018,” she said.

Goh expects Malaysia’s real GDP growth to edge up to 4.7% in Q4’18, with domestic private sector spending and supportive exports being the key levers of growth.

Meanwhile, in a marked difference with consensus forecast, CIMB Research anticipates the domestic economy to show a slower expansion in Q4’18.

This is mainly because contractions in the commodities sector persist, while growth in consumer spending, manufacturing and construction continue to moderate.

“We expect the Q4’18 GDP growth to moderate to 4.2% y-o-y compared to 4.4% in Q3’18,” stated the research firm.

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