Bank Negara bullish, economists cautious

> Last two quarters’ performance casts doubt on country’s ability to achieve 4.8% growth for 2018

PETALING JAYA: Economists have mixed views on Malaysia’s full-year gross domestic product (GDP) growth despite the central bank’s confidence the economy will expand 4.8% this year.

Sunway University Business School’s Professor of Economics Dr Yeah Kim Leng expects GDP growth for 2018 to come in at 4.7% to 4.8% while growth in 2019 could be better than this year if there is sustained global demand.

“For 2019, GDP (growth) would be closer to 5%. It may exceed that if the global economy holds up, in terms of lessening trade tension and strengthening of China’s economy,” he told SunBiz.

However, Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said this year’s GDP growth is unlikely to hit 4.8%, as the quarterly expansions have been on the decline.

“We had 5.4%, 4.5% and 4.4% for the first three quarters (respectively) this year. It would require substantially stronger growth than what we saw in Q3 to hit 4.8% full-year growth,” he said.

The Malaysian economy grew by 4.4% in the third quarter, Bank Negara Malaysia (BNM) announced on Friday.

Pong said the final quarter of the year does not have the tail wind that would boost consumption and expects fullyear growth to come in at 4.5% to 4.6%.

“For 2019, it is quite a challenge to forecast due to global growth slowing. We face headwinds from global growth as we are an export dependent economy. Net exports from goods and services are fluctuating,” he added.

Pong expects GDP growth in 2019 to be similar to 2018’s, due to the unpredictability of global trade.

Commenting on the economic performance in Q3, Yeah said it was softer than expected, which weighed down on growth momentum.

“In the third quarter, services (sector) was good, largely due to private consumption. Growth was largely driven by the services and manufacturing sectors. As long as we can sustain the current growth momentum, a lower oil price will not affect GDP growth,” he said.

On the supply shocks that affected growth in the first nine months, Yeah said the situation is likely to improve as the unscheduled maintenance shutdowns are over, with less disruption and gradual rebound projected.

Pong, who expected Q3 GDP growth of 4%, said the 4.4% achieved was better than projected in view of the high base of 6.2% a year ago.

“In Q3, the challenge was the high base in Q3 last year, when we achieved GDP growth of 6.2%. It is difficult to achieve strong year-on-year growth. Many expected Q3 to be strong due to consumption spending following the removal of Goods and Services Tax (GST). Retail numbers were stronger than what I expected. Consumption was stronger, therefore services was stronger,” he said.

He noted that private consumption was stronger at 9% in Q3 (8% in Q2), which is a rare occurrence, while public consumption was also stronger at 5.2% (3.1% in Q2).

Both Yeah and Pong cautioned that the softening in the plantation sector, especially palm oil prices, could affect smallholders’ income, which would in turn affect consumer spending.

“If commodity prices fall, it will hit GDP. If CPO (crude palm oil) continues to be weak, it will have a negative impact on consumption. In particular, CPO and rubber. As it is now, commodity prices are weak and are still falling,” said Pong.

However, Yeah said the impact on consumer spending would not be that large in view of the government’s spending and policies that remain supportive of consumption.

At a media briefing last Friday, BNM governor Datuk Nor Shamsiah Mohd Yunus said private consumption expanded strongly during the quarter following the zerorisation of GST.

“On the supply side, the services and manufacturing sectors supported growth, while the mining sector continued to be affected by production shocks.”

She said growth could have been 0.5 to 0.7 percentage point higher in the absence of commodity shocks. Nonetheless, Nor Shamsiah believes the economy is on track to register a growth of 4.8% for 2018, supported by private sector activity with gradual recovery in commodity production lending support.