Malaysia’s GDP grows 4.9% in 2Q, exceeding analysts’ forecast

Trade tensions had damaged Singapore, Indonesia and Philippines’ economies as they posted slower growth for the 2Q


MALAYSIA’S economy grew 4.9% for the April through June period, quashing analysts’ initial estimates while riding the global economic turmoil and trade firestorms.

Higher household spending and private investment expansion in key sectors help the economy deliver higher growth compared to regional economies.

US-China trade tensions had damaged Singapore, Indonesia and the Philippines’ economies as they posted slower growth for the quarter compared to the first three months of this year.

Singapore’s GDP missed forecasts and shrunk 3.4% from the first quarter of this year (1Q19), the slowest annual growth in a decade of the island republic.

Thailand, which is planning a US$10 billion (RM41.8 billion) stimulus package, is expected to release its GDP figure today.

Malaysia’s GDP growth beat the median forecast of 4.7% as per 22 economists surveyed by Bloomberg, as well as the 4.5% expansion recorded in both 1Q19 and 2Q18.

Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus said the mining sector recorded its first positive growth of 2.9% since 3Q17, driven mainly by the recovery in natural gas output following pipeline disruptions in 2018.

Growth in the manufacturing sector improved to 4.3%, fuelled by domestic-oriented industries, while the construction sector showed better growth of 0.5% due largely to improvements in high-end residential activity.

The services sector continued to expand at 6.1% amid sustained growth in the wholesale and retail trade subsector. On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 1%.

In agriculture, growth moderated to 4.2% (1Q19: 5.6%) due to a decline in the fishing and forestry segments and weaker natural rubber output, which partially offset the continued recovery in palm oil yields.

For the first half of 2019 (1H19), Malaysia’s economic growth came in at 4.7%.

“That’s why we are very comfortable with the growth range of 4.3%4.8% (for 2019) that we have forecast earlier in the year, and that’s something we are maintaining,” Nor Shamsiah said when announcing the country’s GDP growth in Kuala Lumpur last Friday.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the 2Q19 GDP expansion was higher than expected, which would — to some degree — alleviate concerns on the slowing economy and provide some impetus to local equities.

“Nonetheless, the GDP breakdown showed that business investment is very tepid while the government is very cautious in their spending. Net exports growth was higher, but this was on account of lower imports. So, the external sector was not really forthcoming.

“As such, GDP in 2H19 would grow slower as business sentiments remain weak. The Malaysian Institute of Economic Research’s Consumer Sentiment Index has also remained below the 100point threshold, so the risk of consumers tightening their spending could be highly likely, especially if the rising cost of living continues to affect society,” he told The Malaysian Reserve (TMR).

Meanwhile, MIDF Amanah Investment Bank Bhd is maintaining its fullyear GDP growth projection of 4.9%, its head of research Mohd Redza Abdul Rahman said.

“We think that the recovery of liquefied natural gas exports and also increasing crude palm oil prices will help to further boost domestic exports. That will help mitigate manufacturing exports which are reeling from the impact of the trade war and geopolitical instability,” Mohd Redza told TMR.

Private sector spending remained the key driver of growth with a 4.9% rise during the quarter (1Q19: 4.5%), while private consumption growth stayed firm with a 7.8% expansion.

Private investment growth improved to 1.8% on higher capital spending and the manufacturing and services sectors, although this remains at risk from heightened global uncertainty and slower global growth, as well as persistent weakness in the property segment.

The country’s current account surplus stood at RM14.3 billion or 3.9% of gross national income, lower than RM16.4 billion in 1Q19.

Despite the positive economic data, the central bank said protracted global trade disputes may have significant structural implications, including subdued global growth, high financial volatility and investor uncertainty, and reconfiguration of global value chains.

However, BNM does not expect global growth to enter the negative territory as it did during the 2008 global financial crisis, said Nor Shamsiah.

“There is a case to say that this time around, it’s a bit different…it’s very important for us to look past short-term developments and volatilities,” she said, noting that the previous yield curve inversion took place amid different factors, such as a more acute interest-rate tightening cycle and negative inflation in some countries.

The ringgit depreciated by 1.5% against the US dollar in 2Q19, mainly on non-resident portfolio outflows as investor sentiment remained subdued amid a softening global growth outlook and escalations in global trade tensions.

Yet, the local note has “played a very key role as a shock absorber” to ensure that external developments and shocks do not translate to disruption in economic activity, Nor Shamsiah said.

“We have weathered a number of episodes of severe capital outflow and severe depreciation of the ringgit, and yet the Malaysian economy continues to grow. Our financial markets continue to function in an orderly manner,” she added.

Headline inflation, which rose to 1.5% in June 2019, is expected to average higher in 1H19 following the lapse in the impact of consumption tax policy changes, while underlying inflation is expected to remain stable.

Finance Minister Lim Guan Eng (picture) said the 2Q GDP growth is a testament to Malaysia’s economic resilience.

“Indeed, Malaysia is one of the few economies in the region that experienced faster growth in the 2Q compared to the previous quarter,” he said in a statement over the weekend.