Do­mes­tic ac­tiv­ity will con­tinue to slow: HSBC

> Bank’s re­search arm main­tains as­sess­ment, cites eas­ing quar­terly pri­vate con­sump­tion growth, among other fac­tors

The Sun (Malaysia) - - SUNBIZ -

PETAL­ING JAYA: Malaysia’s gross do­mes­tic prod­uct (GDP) may have seen a year-onyear growth of 4.3% in the third quar­ter of the year, but HSBC Global Re­search said this does not change its long-held as­sess­ment that do­mes­tic ac­tiv­ity con­tin­ues to slow.

It said a closer look at the break­down showed a de­cel­er­a­tion in quar­ter-on-quar­ter pri­vate con­sump­tion growth, while both govern­ment spend­ing and to­tal in­vest­ment con­tracted, nearly negat­ing the gains recorded in Q2’2016.

The only up­side sur­prise was ex­ports, which re­bounded strongly af­ter de­clin­ing for two straight quar­ters.

HSBC said the very low rate of pri­vate con­sump­tion growth is wor­ry­ing and this key pil­lar of the econ­omy looks poised to re­main de­pressed as the wage and labour mar­ket con­di­tions con­tinue to grad­u­ally de­te­ri­o­rate over the next few quar­ters.

“We also note that, for three straight quar­ters now, se­quen­tial in­vest­ment growth has ei­ther been con­tract­ing, or only slightly pos­i­tive,” it said.

It ex­plained that a fair amount of this “in­vest­ment” ap­pears to be pri­mar­ily in the (bub­bly) res­i­den­tial hous­ing sec­tor – as cor­rob­o­rated by the con­struc­tion num­bers in sup­ply-side GDP – rather than out­lays on machin­ery and equip­ment.

With do­mes­tic ac­tiv­ity slow­ing and in­fla­tion not an is­sue, HSBC said that there is one more 25 ba­sis-point rate cut pen­cilled in for Bank Ne­gara’s fi­nal meet­ing this year on Nov 23.

Given the un­ex­pected out­come of the US Pres­i­den­tial elec­tion, how­ever, fi­nan­cial mar­ket volatil­ity in the lead-up to that meet­ing is also likely to be a key con­sid­er­a­tion for the mon­e­tary pol­icy com­mit­tee, it said.

How­ever, HLIB Re­search said the like­li­hood of a cut in the Overnight Pol­icy Rate has be­come lower as the re­bound of Q3 GDP growth could help re­lieve con­cerns on growth out­look.

While mar­kets may con­tinue to re­act to the strong US dol­lar, the re­search house cau­tioned that ex­port stocks may still be af­fected by Trump’s anti-trade sen­ti­ment.

In ad­di­tion, HLIB Re­search said there would be neg­a­tive spill-over if Trump comes harsh on China given Malaysia’s re­cent closed link with China.

Other head­winds that Malaysia is fac­ing in­clude the high for­eign bond share­hold­ing, which stood at 35.7% as at Septem­ber 2016.

HLIB Re­search noted that there is an RM11 bil­lion govern­ment in­vest­ment is­sues ma­tur­ing to­day. The next Malaysian govern­ment se­cu­ri­ties ma­tu­rity will be in Fe­bru­ary and March 2017 car­ry­ing RM8.75 bil­lion and RM10.5 bil­lion re­spec­tively.

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