Real GDP growth to expand about five pct in 3Q18
KUCHING: Analysts estimate for Malaysia’s real Gross Domestic Product ( GDP) to grow at about five per cent in the third quarter of financial year 2018 ( 3Q18) on the back of stronger industry performance as examplified by the Industrial Production Index ( IPI).
This comes as Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw that in the first seven months of 2018, overall IPI growth rose by an average of 3.3 per cent year on year (y- o-y), lower than 4.3 per cent seen in the corresponding period of 2017.
July’s IPI and export growth reflected a stronger start to 3Q18, but was partially due to seasonal factors such as the Hari Raya season.
“Nevertheless, we believe the IPI will be higher in 3Q18, boosted by the tax holiday as consumers would have frontloaded on their purchases,” it said in an analysis yesterday.
Recall that the Goods and Services Tax was zero-rated from June to August 2018, and replaced by the Sales and Services Tax (SST) from September 2018.
“We expect the country’s real GDP growth to improve from 4.5 per cent y- o-y in 2Q18 to about five per cent for 3Q18,” it affirmed.
For 2018, AffinHwang Capital maintained its forecast for the country’s real GDP growth at five per cent as it expects a relatively healthy expansion in private sector activities due to healthy growth in income and employment.
Domestic demand will remain supportive of the country’s real GDP growth.
“Going forward, we believe that the country’s IPI will be affected by uncertainty in its exports-oriented industries in the months ahead,” it opined.
“There is downside risk on global growth, especially with the escalation of trade tensions between US and China, which will have negative implications for global trade growth.
“This was already reflected in the slowdown in export performance from South Korea, Japan and Germany in their recent trade statistics.”
The Industrial Production Index’s ( IPI) year- on-year growth rose 2.6 per cent in July on the back of expansion in the manufacturing sector.
On a monthly basis, it rebounded sharply by 2.2 per cent after it declined by 0.5 per cent in June.
In seasonally adjusted terms, the IPI rose by 2.6 per cent monthon-month (m- o-m). On a year-todate ( YTD) basis, the IPI slowed to 3.2 per cent compared to 4.3 seen in the same period a year ago.
Meanwhile, KenangaInvestment Bank Bhd ( Kenanga Research) said Malaysia’s manufacturing sector demonstrated a sustained growth trend despite US- China trade tension that erupted in July.
“The manufacturing index expanded by 5.2 per cent y- o-y in July.
“On a monthly basis, it gained marginally by 1.8 per cent.
“However, it rose sharply by 3.1 per cent m- o-m on a seasonally adjusted basis,’ it said in a separate note.
“Within the sector, the electrical & electronic ( E& E) sector expanded by eight per cent y- o-y, contributing 2.2 percentage points ( ppts) to the overall IPI growth.
“The sharply higher exports growth to China in the same month at 37.7 per cent y- o-y in July could be one of the major reasons for the higher manufacturing growth in July.”
Despite the better manufacturing output and exports in July, Kenanga Research saw that performance still remained weak and mighty not be sustainable amid the impact of the escalating US and China trade dispute.
Additionally, the three month tax holiday did help to boost manufacturing sector sales which expanded by 4.3 per cent y- o-y in July from 2.7 in June,” it added.
“However, it is unlikely to sustain given the reinstatement of the Sales and Services Tax in September.
“The manufacturing sector growth has slowed to five per cent year-to- date compared to 6.3 per cent recorded in the same period of the preceding year indicating a slower global trade and economic growth.
“On further escalation of the US-China trade dispute along with fears of currency devaluation in the emerging markets, we are projecting the 2H18 export growth to moderate between three to five per cent from seven per cent in the 1H18.
“This will contribute to a lower 2H18 GDP growth forecasts of 4.8 per cent versus 4.9 in the 1H18 and a slower GDP growth projection of 4.8 per cent for the whole of 2018 compared to 5.9 in 2017.”