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AmInvest Research Reports

Author: AmInvest   |   Latest post: Tue, 25 Jun 2019, 10:28 AM

 

Malaysia – Underlying growth moderated

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1Q2019 GDP came in better than expected, beating the market’s and our expectations of 4.3% and 4.1%, respectively. It registered 4.5% y/y, largely supported by a firm rebound in agriculture and government spending. All other sectors presented moderate growth.

With external headwinds remaining strong, added with domestic challenges, we expect growth for 2019 to be around 4.5%, with our upside at 4.7%. The potential upside to growth could also be supported by inventory buildup which fell by RM5.1bil in 1Q2019. It shaved off 0.5 percentage point of 1Q2029 GDP growth. However, our downside 2019 GDP growth is around 4%.

  • 1Q2019 GDP came in better than expected, beating the market’s and our expectations of 4.3% and 4.1%, respectively. The 4.5% y/y growth compared with 4.7% y/y in 4Q2018 primarily came from the support of agriculture and government spending.
  • There was a firm rebound in the agriculture sector, up 5.6% y/y in 1Q2019 from -0.1% y/y in 4Q2018. The stronger growth in the agriculture sector was driven by a recovery in palm oil and rubber subsectors, up 9.8% y/y and 12.0% y/y respectively in 1Q2019 compared with -17.5% y/y and -2.8% y/y respectively in 4Q2018.
  • Under the period in review, palm oil production was boosted by fresh fruit bunches yield, up 9.6% y/y in 1Q2019 from - 5.0% y/y in 4Q2018 while rubber production expanded by 12.8% y/y in 1Q2019 from -17.6% y/y in 4Q2018. Meanwhile, average prices for these commodities i.e. palm oil and rubber appreciated by 5.4% q/q and 22.0% q/q to RM2119/tonne and RM8.32/kg respectively.
  • At the same time, public spending climbed 6.3% y/y compared with 4.0% y/y in 4Q2018 on the back of higher spending on supplies and services. Meanwhile, other demand side growth components like private consumption grew at a slower pace by 7.6% y/y in 1Q2019 from 8.4% y/y in 4Q2018 supported by a steady growth in employment and income.
  • Private investment slowed down significantly to 0.6% y/y from 5.8% y/y in 4Q2018 due to uncertainties in the global environment as well as a prolonged weakness in the broad property segment. However, investment activities in the primarily-related manufacturing and utilities services sub-sectors provided some support to investment growth.
  • However, investment reflected by gross fixed capital formation fell 3.6% y/y in 1Q2019 from a growth of 0.6% y/y in 4Q2018, marking the worst growth since 3Q2009. The overall weak investment activity was largely attributed by the public sector, posting a growth of -13.2% y/y from -5.9% y/y due to the continuous public sector rationalization.
  • Exports during the quarter moderated to 0.1% y/y from 3.1% y/y in 4Q2018 while imports contracted by 1.4% y/y in 1Q2019 compared with a gain of 1.8% y/y in 4Q2018.
  • On the supply side, growth generally moderated in key sectors like manufacturing to 4.2% y/y in 1Q2019 from 4.7% y/y in 4Q2018 following a slower E&E growth. Services also moderated to 6.4% y/y in 1Q2019 from 6.9% y/y in 4Q2018 due to a slower growth in the wholesale and retail trade subsector. Construction grew albeit slowly by 0.3% y/y from 2.6% y/y in 4Q2018 due to slower activities in the non-residential, civil engineering and special trade subsectors.
  • Meanwhile, the current account balance of payment as a percentage of GNI (CABOP%GNI) widened to 4.7% in 1Q2019 compared with 3.0% in 4Q2018 following a larger trader goods surplus of RM33.8bil. Besides, the higher CABOP%GNI was supported by a small income deficit, particular in the secondary income account at RM1.8bil in 1Q2019 from –RM3.8bil in 4Q2018 owing to lower net payments for foreign transportation services. Adding on, the travel account recorded a higher surplus of RM7.9bil from RM7.7bil in 4Q2018 on the back of lower outbound travel payments.
  • With external headwinds remaining strong, added with domestic challenges, we expect growth for 2019 to be around 4.5%, with our upside at 4.7%. The potential upside to growth could also be supported by inventory build-up which fell by RM5.1bil in 1Q2019. It shaved off 0.5 percentage point of 1Q2029 GDP growth. However, our downside for 2019 GDP growth is around 4%.

Source: AmInvest Research - 17 May 2019

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