Real GDP growth to slow to 4.6 pct y-o-y in 3Q

KUALA LUMPUR: Analysts project Malaysia’s real gross domestic product (GDP) growth to slow to 4.6 per cent year on year (y-o-y) in the third quarter of 2019 (3Q19) in view of the softer performance of Industrial Production Index (IPI) growth.

According to the Department of Statistics Malaysia, IPI grew by 1.7 per cent in September compared with the same period last year.

Affin Hwang Investment Bank Bhd (AffinHwang Capital) noted that this was in line with market expectations but pointed out that this had been revised and adjusted lower from 1.9 per cent y-o-y initially to 1.7 per cent y-o-y in August.

“In view of the softer performance of IPI growth in 3Q19, we expect real GDP growth to slow to 4.6 per cent yo-y as compared to 4.9 per cent in 2Q19,” AffinHwang Capital said.

“Despite this, we expect domestic demand growth, especially private consumption, to remain supportive of economic growth. However, weaker external demand due to US-China trade tensions and global growth slowdown may weigh on the country’s export performance.”

For the full year, the research firm maintained its real GDP growth projection of 4.7 per cent in 2019E, compared to 4.7 per cent in 2018.

Going into 2020, AffinHwang Capital projected Malaysia’s real GDP growth to be slightly lower in the area of 4.5 per cent, below the government’s 4.8 per cent projection for next year as the research firm anticipated export growth to be weighed down by external uncertainties such as continuation of the trade war tensions.

“Despite this, we expect private consumption to remain supportive and commendable on the back of the healthy labour market and steady wage growth as well as government measures and initiatives introduced in Budget 2020 to support private consumption.”

AffinHwang Capital believed Malaysia’s manufacturing sector will continue to be weighed down in coming months as Malaysia’s manufacturing Purchasing Managers’ Index (PMI) has remained below the 50-level mark since October 2018 despite rising to a six-month high in October of 49.3 (47.9 in September).

The research firm highlighted that external conditions may also remain uncertain as trade talks between US and China have yet to be resolved.

“In 2020, even though World Semiconductor Trade Statistics (WSTS) projects a rebound in global semiconductor sales of 4.8 per cent in 2020 compared to its projection of a 13.3 per cent decline in 2019, there is also downside risk.”