Domestic activity will continue to slow: HSBC

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

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.