The highs and lows of Malaysia’s 4Q19 performance

By ASILA JALIL & NG MIN SHEN / Pic By MUHD AMIN NAHARUL 

MALAYSIA’S GDP grew 3.6% in the fourth quarter of 2019 (4Q19) from 4.4% in the previous quarter.

Malaysia’s chief statistician Datuk Seri Dr Mohd Uzir Mahidin said the country experienced a moderation in economic performance for the quarter.

For 2019, the country’s economy posted a growth of 4.3% with a value of RM1.42 trillion at constant prices and RM1.51 trillion at current prices.

Here are the details of Malaysia’s economic growth in the quarter.

 

 

 

 

 

A) Malaysian economy grew by 3.6% (3Q19: 4.4%)
i) Supported by private sector spending of 7.4% (3Q19:5.4%).
ii) Growth affected by a decline in net exports.
iii) On supply side, higher growth in services and construction sectors weighed down by supply in disruptions in commodities sector.

B) Growth underpinned by domestic demand
i) Domestic demand expanded 4.9% (3Q19: 3.5%)
• driven by higher private sector activity.
ii) Private consumption growth increased to 8.1%
(3Q19: 7%)
• anchored by positive income and employment growth.
iii) Public consumption expanded by 1.3% (3Q19: 1%)
• supported by higher growth in emoluments.
iv) Gross fixed capital formation registered small contraction of 0.7% (3Q19: -3.7%)
• Underpinned by higher capital spending by private sector.
v) Investment in structures grew 0.1% (3Q19: -2.4%).
vi) Investment in machinery and equipment grew -2.6% (3Q19: -7.4%).
vi) Private investment higher growth of 4.2% (3Q19: 0.3%).
vii) Public investment decline of 7.7% (3Q19: -14.1%).

C) Higher growth in the services and construction sectors, weighed down by supply disruption in the commodities sector
i) SERVICES SECTOR
• Growth rate: 6.1% (3Q19: 5.9%)
•Growth mainly driven by firm consumer-related spending, mainly in the food and beverage and accommodation sub-sector as well as motor vehicles.
ii) MANUFACTURING SECTOR
• Growth rate: 3% (3Q19: 3.6%)
• Electrical and electronics (E&E) production was affected by continued weakness in the global demand for semiconductors.
iii) AGRICULTURE SECTOR
• Growth rate: -5.7% (3Q19: 3.7%)
• Due to decline in palm oil output, affected by severe dry weather conditions and cutbacks in fertiliser application during early 2019.
iv) MINING SECTOR
• Growth rate: -2.5% (3Q19: -4.3%)
• Reflecting smaller decline in oil production as output gradually recovered from major maintenance work done in 3Q19.
v) CONSTRUCTION SECTOR
• Growth rate: 1% (3Q19: -1.5%)
• Recovery mainly due to turnaround in the residential subsector, supported by affordable housing activities.

D) Headline inflation declined as the impact of the SST implementation lapsed
• Headline inflation down to 1% (3Q19: 1.3%).
• Fuel inflation continued to have a negative contribution to inflation, as domestic retail fuel price ceilings were maintained.

E) Improved labour market conditions
i) Employment growth up          2.2% (3Q19: 2.1%).
ii) Unemployment rate down    3.2% (3Q19: 3.3%).
iii) Wages growth rate:
• Private sector:                              3.9% (3Q19: 3.8%).
• Private services:                          4.2% (3Q19: 4.1%).
• Manufacturing sector:                3.3% (3Q19 3.2%).
• E&E industry:                             3.8% (3Q19: 4.1%).

F) Sharper decline in exports, while imports registered a smaller contraction
i) Gross exports contracted by 3.3% (3Q19: -1.9%)
• weighed by decline in both manufactured and commodities exports.
ii) Gross imports declined at a slower pace of 4% (3Q19: -5.8%)
• due to a positive turnaround in intermediate imports and a smaller contraction in capital imports.
iii) Trade surplus up to RM36.5 billion (3Q19: RM33.5 billion).
iv) Manufactured exports contracted by 1.2% (3Q19: -0.6%)
• mainly to the decline in E&E exports (4Q19: -6.5%; 3Q19: -4.9%) amid lower exports to the US, China and regional economies.
v) Commodities exports declined by -14.3% (3Q19: -10%)
• due to sharp contraction in liquefied natural gas exports (4Q19: -25.2%; 3Q19: 4.1%), following temporary facility closures and lower prices.
vi) Intermediate import growth grew by 0.9% (3Q19: -3%)
• due to higher imports on industrial supplies such as metal products, and parts and accessories of capital goods.
vii) Capital imports declined by -8.9% (3Q19: -15.5%)
• supported by higher demand for maritime ships, aircrafts and office equipment.

G) Narrower current account surplus
i) Current account surplus of the balance of payments amounted to RM7.6 billion or 2% of GNI in 4Q19 (3Q19: RM11.5 billion or 3.1% of GNI).
• higher goods surplus offset by larger income and services deficits.
ii) goods surplus widened to RM32.8 billion (3Q19: RM30.8 billion).
iii) services account deficit widened to RM4.0 billion (3Q19:
• RM1.6 billion).
• due to a decline in the travel account surplus (4Q19: RM6.4 billion ; 3Q19: RM9.5 billion) following lower tourist arrivals.
iv) Primary income account registered a larger deficit of RM15.7 billion (3Q19: -RM12.2 billion).
v) Secondary income deficit amounted to RM5.5 billion (3Q19: • RM5.5 billion).
Overall, the malaysian economy grew by 4.3% in 2019. Growth was affected by the challenging external environment and disruptions in commodity-related sectors and contraction in public investment.

H) Financial account registered a smaller net outflow
i) Registered a net outflow of RM0.6 billion (3Q19: -RM1.3 billion)
• due to lower net outflow of portfolio investments amid net inflow in the direct investment account (DIA).
ii) Direct investment account registered net inflow of RM2.2 billion (3Q19: net outflow of RM0.8 billion).
• reflecting higher foreign direct investment (net inflow RM3.7 billion) and a smaller net outflow of DIA (RM1.5 billion).
iii) Portfolio investment account registered smaller net outflow of RM2.8 billion (3Q19: -RM26.8 billion).
• following more moderate outflows from resident investors and a return of non-resident portfolio investments.
iv) Other investment account recorded a marginal net inflow of RM0.6 billion (3Q19: RM25.3 billion).
• reflected a drawdown of loans to the private sector, which were almost entirely offset by net interbank placements abroad by resident banks.

I) Manageable external debt
i) Increased to RM946.3 billion or 62.6% of GDP as at end December 2019 (end-Sept 2019: RM916.4 billion or 60.7% of GDP).
• Higher external debt reflects the increase in non-resident (NR) deposits and purchases of Malaysian Government Securities and higher external borrowings by resident corporations.
ii) Close to one-third of external debt was denominated in ringgit (32.8%; end-Sept 2019: 32%).
iii) The remaining external debt (RM635.9 billion or 67.2% of total external debt) was denominated in foreign currency (FCY).
iv) Interbank borrowings and FCY deposits in the domestic banking system accounted for 38.6% (or RM245.3 billion) of FCY-denominated external debt
• three-quarters of the interbank borrowings in the form or largely stable intragroup borrowings, including from parent banks, regional offices and subsidiaries.
v) FCY-denominated debt subject to prudent liquidity management practices and hedging requirements. Breakdown FCY-denominated external debt (% share)
• Interbank borrowings :      31.2%
• Bonds and notes :               24.5%
• Intercompany loans :         14.1%
• Loans :                                   11.9%
• Others :                                  11%
• NR deposits :                         7.4%
vi) From a maturity perspective, 58.6% of the total external debt was skewed to medium to long-term tenure (end Sept 2019: 57%), suggesting limited rollover risks.
vii) Short-term external debt accounted for the remaining 41.4% of external debt.
viii) As at Jan 31, 2020, international reserves stood at US$104.2 billion, sufficient to finance 7.5 months of retained imports and is 1.1 times the short-term external debt.

 

 

 

 

 

A) The performance of domestic financial markets improved during 4Q19
i) Improvement contributed mainly by the resumption in non-resident portfolio inflows
• largely driven by positive developments in global trade negotiations and global monetary policy easing
• led to improved investor sentiments.
ii) Domestic financial markets affected by intermittent periods of uncertainty on trade tension, investor sentiments were lifted after announcement of a Phase One trade deal between the US and China in December, signed on Jan 15, 2020.
iii) Synchronised policy rate cuts by several major central banks contributed in improving global investor risk appetite.
iv) 3-year, 5-year and 10-year MSG yields dropped by 9.5, 5.7 and 3.4 basis points respectively.
v) KLCI up by 0.3% to close at 1,589 points as at end-December 2019 (end-Sept: 1,584 points).
vi) Ringgit appreciated by 2.3% against US dollar.

B) Interest rates remained stable during the quarter
i) 3-month Klibor declined slightly after the reduction in the Statutory Reserve Requirement (SRR) was announced in November 2019, ended the quarter at 3.35% (3Q19: 3.38%).
ii) Weighted average base rate on outstanding loans is at 3.68% (3Q19: 3.68%).
iii) Weighted average lending rate on outstanding loans at 5.16% (3Q19: 1.99%).
iv) Real fixed deposit rates increased amid lower headline inflation
• 3-month rate up to 1.9% (3Q19: 1.75%)
• 12-month rate up to 2.09% (3Q19: 1.99%)

C) Banking system liquidity remained sufficient to facilitate financial intermediation
i) Reduction in the SRR ratio led to higher liquidity available to banks, providing greater flexibility for banks in their liquidity management.
ii) Reflected in the higher level of money market placement with the bank by the end of 4Q19.

D) Sustained expansion of net financing
i) Expanded by 4.7% on an annual basis (3Q19: 4.8%)
• supported by sustained growth in outstanding loans (4Q19: 3.5%; 3Q19: 3.5%).
ii) Growth in outstanding corporate bonds moderated slightly to 8% (3Q19: 9%), amid higher redemptions.
iii) Outstanding business loans up to 2.4% (3Q19: 1.6%)
• driven by higher loan growth in manufacturing sector and improvement across most sectors.
iv) Outstanding loans in household segment stable at 4.7% (3Q19: 4.6%).

 

 

 

 

 

i) Growth of the Malaysian economy in 2020 was expected to continue to be supported by private sector spending.
ii) Downside risks to growth remained, including:
• uncertainty from various trade negotiations
• geopolitical risks
• weaker than expected growth of major trade partners
• heightened volatility in financial markets
• domestic factor: weakness in commodities sector, delays in implementation of projects
iii) Headline inflation in 2020 expected to average higher but remain modest
• trajectory dependent on global oil and commodity price developments and the timing of the lifting of the domestic retail fuel price ceilings.
iv) Other policy highlights in 4Q19
• Electronic Know-Your-Customer (e-KYC) — exposure draft (ED)
• Fair Treatment of Financial Consumers — policy document (PD)
• Licensing Framework for Digital Banks — exposure draft (ED)
• Responsibility Mapping – exposure draft (ED)
• Valuation of Insurance and Takaful Liabilities — exposure draft (ED)