Vision 50/50: Govt seen having 50% chance of meeting 2019 GDP growth target of 4.7%


  • Economy
  • Tuesday, 19 Nov 2019

PETALING JAYA: There is only a 50% chance of the government achieving its economic growth target of 4.7% this year, an economist cautions, as Malaysia faces further slowdown in exports and a challenging domestic environment.

The economy must expand by 5% in the fourth quarter of 2019 for the full-year growth to hit 4.7%. However, AmBank Group chief economist Anthony Dass only forecasts a 4.2% growth for the October-December 2019 period.

Another economist, Socio-Economic Research Centre (SERC) executive director Lee Heng Guie, expects a growth of 4.5% to 4.6% in the final quarter, likely to be dragged down by sluggish exports and slowing domestic demand.

The comment from Dass and Lee came just a few days after Bank Negara announced a 4.4% growth for the third quarter of 2019 (3Q19) - the slowest pace in a year - as the services, manufacturing and agriculture sectors clocked in slower growth, while the construction and mining sectors contracted.

A gross domestic product (GDP) growth of less than 4.7% in 2019 would mark the country’s second consecutive year of slower economic expansion. The GDP grew 4.7% in 2018, down from 5.7% in 2017.

Speaking with StarBiz, Dass, however, said that the 4.7% target could still be within reach, if several growth drivers such as private consumption and investment, public expenditure and net exports are favourable to the economy.

“It is possible to achieve the target if private consumption remains at 7% or slightly higher in the final quarter, driven by the festive seasons and back-to-school spending. Public expenditure also should grow around 1% in the fourth quarter, similar to what we saw in 3Q19.

“We also need a bigger net export contribution, which either means higher exports or a sharper drop in imports. We have decided to maintain our full-year base case growth of 4.5%, given the challenges on the external and domestic fronts.

“And to achieve our base-case projection, the final quarter will need to come in at 4.2%, which seems more ‘acceptable’, based on the current economic indicators that are all pointing towards a softer 4Q19 GDP, ” he said yesterday.

While private consumption is expected to remain as the key driver of growth, Dass believes that the upside could be fairly muted, owing to the increasing trend of bad loans plus declining consumer sentiment.

“On the investment side, it is expected to remain weak. Declining business sentiment, cash flow issues, poor orders and a drop in inventory point towards slower capital expenditure.

“The challenges come from both the external and domestic fronts.

“This is clearly reflected by the net exports, which on average, grew 16.6% mainly due to the collapse in imports on average by -2.3%, ” he said.

SERC’s Lee expects a 4.6% GDP growth for full-year 2019 and 4.5% next year.

Commenting on the future growth trajectory, Lee warned that a persistent pullback on capital spending would take much of the steam out of the economy going forward and undermine capital formation.

Private investment recorded a sluggish 0.3% growth in 3Q19, taking the cumulative growth to only 0.9% in the first nine months of the year.

Lee pointed out that this marks the second successive year of sharp moderation in private investment since 2017 (9%) and 4.3% in 2018.

For context, private investment growth in the first and second quarter of 2019 were at 1.8% and 0.4%, respectively.

“There are also worries that weak business investment and challenging economic conditions could constrain companies’ ability to continue hiring more workers, and undermine consumer spending.

“We see an urgent need for policy reorientation to enhance a better investment climate and competitive cost of doing business, as well as provide growth catalysts to re-energise private investment.

“Overall, there remain considerable risks that would weigh on growth prospects in 2020.

“Consumers are the sole support to the economy, but the question remains whether or not consumption can continue to provide indefinite support without improvement in other key areas, ” he said.

Lee urged the planned government budget and projects, especially smaller projects, to be implemented expeditiously.

“Topping the external risk is further escalation in trade disputes that could sap the global economy and trade, and hence delay our exports recovery. Other risks are heightened geopolitical tensions and volatility in commodity prices, ” he said.

Meanwhile, Dass said the economy could likely improve in 2020, underpinned by several growth drivers such as the rollout of mega-construction projects, the government’s higher development spending allocation under Budget 2020 and Visit Malaysia Year 2020, which would spur tourism and related retail businesses.

“We also expect a one-time overnight policy rate cut in January 2020, with an 80% probability. If this takes place, the cost of borrowing will come down and spur the domestic economy.

“In addition, I think global semiconductor sales will bottom out and recover in the second half of 2020. This will be positive for our exports growth, ” he said.


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