Malaysia’s 3Q GDP likely lower on slow output

The supply side is expected to see slowing services growth, as the IoS moderated to 6.2% from 6.4% YoY


MALAYSIA’S economic growth as measured by GDP is expected to moderate in the third quarter of 2019 (3Q19) amid statistics suggesting slower domestic demand and supply, said analysts.

Maybank Investment Bank Bhd (Maybank IB) expects a GDP growth of 4.3% year-on-year (YoY) for 3Q19, lower than the 4.9% expansion recorded in 2Q19.

Supply-side data suggest slower growth on mining output and construction works’ contractions alongside moderation in manufacturing services indices, while palm oil and rubber agriculture outputs are stable, it said.

“Demand-side indicators point to deceleration in domestic demand to offset the stronger expansion of net external demand growth given the surge in trade surplus,” Maybank IB wrote in a note yesterday.

It said supply-side GDP indicators were weaker in the quarter, such as a decline in the mining production index from -3.3% in 2Q19 to -4.7% in 3Q19 which points to a drop in mining GDP.

Construction works done were also lower from 0.8% YoY in the 2Q to -0.6% YoY now, indicating a contraction in construction GDP.

Overall, the supply side is expected to see slowing services growth, as the index of services (IoS) moderated to 6.2% YoY from 6.4% YoY, while mining and manufacturing declined and construction tipped into the red.

The agriculture sector, however, is seen to remain stable during the period of the continued output expansion of crude palm oil, palm kernel and rubber.

On the demand side, indicators point to slower domestic demand growth albeit firmer net external demand growth.

The retail trade index moderated from 9% YoY to 7.8% YoY, proposing slower real private consumption which was recorded at 7.8% YoY during 2Q19.

Real gross fixed capital formation should decline for the third straight quarter by 0.6% YoY, given the continued slump in capital goods imports.

The demand side is seeing moderation in consumer spending, while investment activities are still in the red as imports of capital goods declined by the fastest pace from -8.9% to -15.4% YoY.

A pick up in the government spending should also aid public expenditure, while net external demand growth momentum is expected to remain robust. The trade surplus was on its fourth straight quarter of expansion.

The expansion showed 33.3% YoY growth to RM33.5 billion against the previous quarter’s growth of 7.9% to RM30.4 billion, which indicated sustained robust real net external demand growth. The figure for the previous quarter was up to 22.9% YoY.

Meanwhile, CGS-CIMB Securities Sdn Bhd expects GDP growth to come in at 4.6% for 3Q19, due to a slowdown in the mining and industrial sectors.

It said the 1.7% YoY increase in the nation’s Industrial Production Index (IPI) was below the research house’s expectations of a 2.5% rise.

“Cumulatively, the IPI rose 1.6% YoY in 3Q19, the most subdued pace since 1Q13. More worryingly, the manufacturing sector expanded just 3.3% YoY in 3Q19, registering the weakest growth since 2013,” it said in a report yesterday.

It added that the mining drag and waning industrial momentum will weigh on the economy in 3Q19.

“We project Malaysia’s GDP growth to moderate from 4.9% in 2Q19 to 4.6% in 3Q19.” Bank Negara Malaysia is expected to announce the country’s GDP for the 3Q on Friday.