Malaysia’s economy to expand between 4.4% and 4.5% in 2019

The moderate growth has been supported by continuing, albeit slightly weaker, performance of services and manufacturing

by ALIFAH ZAINUDDIN / pic by TMR FILE PIX

MALAYSIA’S economy is forecast to expand between 4.4% and 4.5% for 2019, hurt by the slower growth in the October through December period (4Q19) as the US-China trade war erases billions in US dollar in trade.

Global growth has been dragged down by the trade tensions between the world’s two largest economies, with China posting the slowest growth in three decades last year.

It was a difficult final quarter for Malaysia’s open economy as slower demand dented the country’s exports. Industrial production remained challenged with factory output in December only growing 1.3% year-on-year (YoY), far below market expectations, while growth in November was at 2% and October recorded the slowest pace in more than six years.

A Bloomberg poll of 10 economists put Malaysia’s 4Q19 growth at 4.1%, with estimates ranging from 3.5% to 4.7%.

Bank Negara Malaysia will release the country’s economic growth report at 12pm today.

Malaysia, South-East Asia’s third-largest economy, grew 4.5% in 1Q19 and 4.9% in the period of April through June, before slowing to 4.4% in 3Q19.

Economist Prof Dr Yeah Kim Leng said the country’s economy is expected to post growth between 4% and 4.3% in the final three months of 2019, putting Malaysia’s full-year GDP growth between 4.4% and 4.5%.

“The moderate growth has been supported by continuing, albeit slightly weaker, performance of the services and manufacturing sectors, while the mining and construction sectors either stagnated or contracted mildly.

“On the demand side, private consumption supported by stable income and full employment continued to be the mainstay, while investment remained tepid with a slight recovery expected in 2020,” Yeah told The Malaysian Reserve.

Private consumption was the driving force of the economy for the whole of last year. The government’s move to fast-track some key projects would also have injected some zest to the economy.

Institute for Democracy and Economic Affairs research manager in economics and business Lau Zheng Zhou said Malaysia’s 2019 GDP should not be too far off from the International Monetary Fund’s full-year estimate of 4.7%.

“Our 3Q growth eased to 4.4% from 4.9% in 2Q, dragged by slower production across the board: Services, manufacturing and agriculture.

“Private consumption has also fallen on a YoY basis, but seemed to have picked up in 3Q and hopefully in 4Q, due to the holiday season effect,” he said.

The economy received a slight boost in December as total trade grew 1.9%, ending a six-month streak in the negative territory. Export for the month expanded 2.7%, while imports increased slightly by 0.9% following a two-month decline, largely due to the preparations for the Chinese New Year .

The central bank’s unexpected policy rate cut in January indicated future headwinds and the bank’s intention to keep borrowing cost low to bump up the country’s 2020 growth targets.

Lau said the coronavirus outbreak may bring about a larger impact on the country’s economy as China has turned into a key trading partner.

“The supply chain link with China is heavily disrupted and this may have repercussions on private investment. Firm managers may choose to hold cash in reserve rather than making new investment or consumption — and this may slow down growth due to multiplier effect,” he said.

Lau said the US-China “Phase 1” trade deal may provide short-term relief to world trade and investment, as the coronavirus outbreak would prompt China to back down from raising the tariff on US goods.

“But the overall outlook for 2020 is slow, unless there is further risk from climate change (following Australia’s bushfires) and other random events. Central banks in both advanced economies and Malaysia have been quite accommodating too. So, it is a picture of slow but stable growth,” he said.

Yeah, however, expects a better 2020 with the GDP expected to grow between 4.6% and 4.7% despite all the downside risks.

“The economy remains resilient amid higher government spending, especially on infrastructure spending,” he said.

He added that higher exports on account of the US-China “Phase 1” trade deal and stronger global growth prospects will also keep Malaysia’s GDP growth trajectory within the 4%-5% range this year. Putrajaya is setting its sight on a 4.8% growth for 2020.