by RAHIMI YUNUS & SHAZNI ONG/ pic by MUHD AMIN NAHARUL

ANALYSTS warned that continued contraction in private investments would pose a risk to Malaysia’s economy, which expanded 4.4% for the July-September 2019 period (third quarter of 2019 [3Q19]), the slowest pace in a year.

As evident in the current economic growth, people are treading carefully through a period of uncertainty largely brought on by the US-China trade war, Alliance Bank Malaysia Bhd chief economist Manokaran Mottain said.

“What is worrying is the continued decline in private investment. Foreign direct investments are still coming in and getting approved, but how they translate into investments is still slow.

“I think the slowdown (in 3Q19 GDP) is not a surprise. The whole economy has been very cautious. Businessmen and consumers are cautious due to trade uncertainties and local developments,” Manokaran told The Malaysian Reserve (TMR).

Declines in all major sectors, especially mining, exports and construction, pulled the brakes during the3Q.

Export growth — which weakened further to -1.9% in 3Q19 from -0.4% recorded in 2Q19 — is expected to remain weak, unless trade tensions are resolved, Manokaran added.

Malaysia’s GDP growth averaged at 4.6% for the first nine months of the year, after beating analysts’ forecasts in 2Q19 with a 4.9% expansion, and 4.5% in 1Q19.

“3Q growth was dragged by a sharp deceleration in private consumption compared to 2Q19,” Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said.

Net exports recorded a double-digit growth of 15.9%, but this was merely due to further contraction in real imports of -3.3% versus a decline in exports of 1.4%.

“In a nutshell, growth momentum has decelerated and this was very much in line with external uncertainties, as well as weak business and consumer sentiments domestically,” Mohd Afzanizam told TMR.

The economy needs to expand 4.8% in the final quarter to achieve the government’s projected growth of 4.7% for the full year.

Bank Islam is keeping its full-year projection of 4.5%, with a growth rate of between 4.3% and 4.4% expected in 4Q19, Mohd Afzanizam said.

Meanwhile, Alliance Bank’s Manokaran estimates a 4.6% growth in GDP for the full year, with a slight rebound possible in 4Q19 as consumers increase spending during the festive season and will be in preparation for the new school year.

However, there aren’t any strong drivers to steer the economy in 4Q19 apart from private consumption as private investment remains soft, he said.

“Consumer spending will remain resilient in the coming quarter, but an economy that relies on consumption has limited upside,” independent economist Lim Chee Sing said.

“If government spending and external demand are weak, then growth would depend on consumer spending. Thus, we have a single engine of growth. It’s very hard to see growth coming back strongly in 4Q19 unless external demands improve,” said Lim, who retired from RHB Research Institute Sdn Bhd as chief economist.

“The country does not need any monetary policy adjustments presently,” Manokaran added.

But analysts believe Bank Negara Malaysia (BNM) may cut the Overnight Policy Rate next year to spur the economy after keeping the rate unchanged at its latest November meeting.

“The 3Q19 GDP print confirmed the widely expected slowing growth narrative, suggesting GDP is set to fall towards 4% as private consumption slows further in 4Q19, which suggests BNM will cut interest rates at least one more time in the first half of 2020, but too far away to have any meaningful impact,” AxiTrader Asia-Pacific market strategist Stephen Innes told TMR.

He expects the ringgit to move back towards RM4.14 against the US dollar this week, provided there aren’t any more trade talk hiccups, and based on the direction of travel for the yuan.

“If we get any degree of concession from US President Donald Trump that a tariff rollback is on the table, we could see RM4.14 (making its) way. But I’m expecting a RM4.14 to RM4.16 range next week, as we continue to toggle risk-on risk-off,” Innes added.