Malaysia’s GDP climbs to 4.7% in 4Q18 as concerns ease

Key sectors posted positive growth as services, manufacturing, mining and quarrying rebounded in October-December 


Malaysia’s economy rose by 4.7% in the final quarter of 2018 (4Q18), ending four quarters of slipping growth as the services and net exports helped to allay fear of the country’s future economic prospects.

For the whole of 2018, the economy expanded 4.7% after a lacklustre 4.5% and 4.4% growth in the 2Q and 3Q respectively. But the growth for the January-December 2018 period was lower than the 5.9% recorded in 2017.

The size of the country’s economic pie based on GDP rose to RM1.23 trillion (constant prices) and RM1.43 trillion (current prices) last year compared to RM1.17 trillion and RM1.35 trillion respectively in 2017, according to the Department of Statistics Malaysia (DoS).

All key sectors posted positive growth, except for agriculture, as the services and manufacturing activities, as well as mining and quarrying rebounded in the October through December period.

Growth for South-East Asia‘s fourth-largest economy, however, was marred by global market volatility, trade tension and uncertainties after Barisan Nasional was displaced in May in the 14th General Election (GE14) by Pakatan Harapan.

After a pullback in foreign and domestic investments prior and immediately after GE14, foreign direct investments (FDIs) tripled quarter-on-quarter in the last three months of 2018, registering net inflows of RM12.9 billion compared to RM4.3 billion in 3Q18 and 2Q18 respectively, RM11.2 billion (1Q18) and RM2.5 billion (4Q17).

Consumer spending and higher exports of electrical and electronics (E&E) and consumer-related clusters helped to cushion global economic impact.

Commodities-related sectors continued to recover from production disruptions experienced since the 2Q18, with stronger expansion in the mining and agricultural sectors.

Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus deemed the full-year growth as “highly respectable”.

“It was always our baseline case that 2018 will be a year when the economy will moderate from the exceptional performance in 2017,” Nor Shamsiah said at the media briefing yesterday.

The economy, she said, was impacted by unanticipated one-off factors like supply disruption of natural gas and low crude palm oil prices besides a brief period of uncertainty following GE14.

The country’s GDP growth for last year was slightly below the central bank’s prior forecast of 4.8%, but higher than earlier analysts forecast of about 4.5%.

But Malaysia faces headwinds including global trade tensions and slowing global economy and financial markets.

Nor Shamsiah said the slowdown in global growth should be seen as a “normalisation of global growth, closer to its long-term trend”.

“It’s not a moderation where we’re heading towards a recession. It’s a normalisation of global growth after the waning impact of various impetus such as US tax cuts and accommodative monetary policy after the global financial crisis.

“There are downside risks to growth, but it’s important for us to contextualise what’s happening. In terms of data, growth is moderating to a long-term trend. This is what we’re going to experience this year and next year,” she said.

Commencement of the Refinery and Petrochemical Integrated Development project in Johor, the establishment of new E&E facilities, and a sustained domestic demand encompassing private consumption and civil engineering projects including the Mass Rapid Transit Line 2, the Light Rail Transit 3, as well as the Pan Borneo Highway would continue to pump growth. Recovery in the supply side for gas production is also expected to boost growth.

For the overall 2018, portfolio investment saw total outflows of RM44.4b, says Marzunisham (Pic by Ismail Che Rus/TMR)

Meanwhile, headline inflation declined to 0.3% in 4Q18 from 0.5% in 3Q18, mainly due to transport inflation turning negative, as well as the tax-holiday period.

Inflation is expected to moderate higher, with the impact of the consumption tax policy on headline inflation in 2019 to start lapsing towards end-2019.

External debt edged lower to RM924.9 billion, or 64.7% of GDP as at end-December 2018, from RM933.3 billion or 65.3% of GDP as at end-September 2018.

The ringgit depreciated by 1.8% against the US dollar in 2018 alongside most regional currencies, but has appreciated by 1.5% year-to-date as at Feb 12, 2019.

Nor Shamsiah said there will be “bouts of volatility” in currency movement this year.

FDI inflows came from the advanced economies including the Netherlands, Japan and Hong Kong. The direct investment account saw a higher net inflow of RM2.1 billion versus a net inflow of RM500 million in the 3Q. Direct investments abroad by Malaysian companies were also higher at RM10.8 billion in 4Q18 versus RM3.8 billion in 3Q18.

“For the overall 2018, portfolio investment saw total outflows of RM44.4 billion,” BNM assistant governor Marzunisham Omar said.

Net outflow in 4Q18 stood at RM3.3 billion, versus a net inflow of RM4.4 billion in the 3Q18.