‘Private consumption activities likely to remain robust’
Factors include general election and pro-consumer plans
PRIVATE consumption activities, which have led to robust growth in Malaysia’s economy so far this year, are likely to continue into next year, says HSBC Bank.
With the likelihood of the general election being called soon after the Chinese New Year in the first quarter of next year, the private consumption trend will likely continue.
Recovering oil and gas prices as well as higher Goods and Services Tax revenues that allow various pro-consumer measures should support private consumption.
HSBC economist Joseph Incalcaterra said the Malaysian economy had continued to surpass all expectations. He was referring to Malaysia’s third-quarter gross domestic product (GDP), which expanded at its fastest pace in over two years — at 6.2 per cent year-on-year — led by private consumption, investment and net exports.
“The sharp acceleration in private consumption this year caught us by surprise — and was at odds with fundamentals, such as relatively tepid wage growth in the services sector, in which most Malaysians work, higher pump prices due to recent subsidy reforms and household debt deleveraging,” said Incalcaterra in a report on the outlook for the first quarter of next year.
He said this year’s consumption activities were boosted by cash handouts for civil servants and higher welfare payments, a reduction in mandatory Employee’s Provident Fund contributions and the lagged impact of a minimum wage rise last year.
Apart from consumption, Malaysia also benefited from a sharp external recovery, especially from electronics and electrical production, which accounted for roughly one-third of exports.
Increasing palm oil and liquefied natural gas volumes and prices provided support to both exports and rural incomes, said Incalcaterra.
“Imports should pick up further alongside various big-ticket infrastructure projects such as the East Coast Rail Link, suggesting net exports will likely drag down growth and current account surplus next year.”
He expects the structure to change next year, driven by public investments as compared with private investments this year.
“We expect public investment growth to accelerate next year, driven by the large pipeline of China’s privately funded projects.”
Incalcaterra expects a one-time 25 basis points hike in the Overnight Policy Rate as part of Bank Negara Malaysia’s policy normalisation in the first quarter next year.
“The upturn in exports resulted in a larger-than-expected current account surplus last year and this year, but we believe strong import growth will result in a deterioration to 2.5 per cent of GDP next year and 2.0 per cent in 2019.”