HLBank Research Highlights

Author: HLInvest   |   Latest post: Wed, 11 Dec 2019, 9:29 AM


Economics - 3Q 2019 GDP Forecast at +4.4% YoY

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We expect 3Q 2019 GDP to expand at a modest pace of +4.4% YoY (consensus forecast: 4.5% YoY; 2Q 2019: +4.9% YoY) following the release of various indicators. Growth is anticipated to be slower due to declining in mining activity, and broad based moderation in other sectors. Downside risks to growth remain as prolonged trade tensions and soft global demand could lead to continued cautiousness in investment and trade activities. Pending the 3Q19 GDP release on 15th Nov, we maintain our 2019 GDP at +4.5% YoY (2018: +4.7% YoY).

We expect 3Q19 GDP to moderate to +4.4% YoY (consensus forecast: 4.5% YoY; 2Q19: +4.9% YoY). 3Q19 GDP will be released on 15th November 2019.

3Q19 GDP: Growth likely lower due to decline in mining activity, and broad based moderation in other sectors. The agriculture sector is expected to grow at a softer pace in 3Q19 following moderation in palm oil production (+9.2% YoY%; 2Q19: +9.6% YoY). The mining sector is anticipated to post a decline due to deceleration in natural gas production (+3.2% YoY; 2Q19: +8.9% YoY) and sharper decline in crude oil production (-12.3% YoY; 2Q19: -2.6% YoY) following the temporary closure of Gumusut-Kakap oilfield for maintenance works in the early part of the quarter. In the manufacturing sector, growth is expected to moderate as manufacturing IPI slowed (+3.4% YoY; 2Q19: +4.1% YoY) on the back of slower growth in both export-oriented (+3.2% YoY; 2Q19: +3.8% YoY) and domestic-oriented sectors (+3.6% YoY; 2Q19: +4.8% YoY). Meanwhile, construction sector growth is expected to weaken. In 3Q19, construction of residential (-2.7% YoY; 2Q19: -1.1% YoY) and non-residential buildings (-11.6% YoY; 2Q19: -9.3% YoY) declined at a faster pace, while civil engineering activity moderated to +7.5% YoY (2Q19: +8.2% YoY). In the services sector, we anticipate a slight moderation in growth. Retail trade activity eased to +7.8% YoY (2Q19: +9.0% YoY) amid a further decline in consumer sentiment during the quarter (84.0; 2Q19: 93.0). Motor vehicle sales also slowed to +1.9% YoY (2Q19: +4.1% YoY) as consumer spending continued to normalise after the tax holiday period.

On expenditure front, net export is anticipated to contribute to overall GDP due to higher trade surplus during 3Q19 period (RM33.5bn; 3Q18: RM25.1bn). This was due to steeper decline in imports (-5.8% YoY; Aug: -1.4% YoY). Imports mainly deteriorated on account of a sharp drop in capital imports (-12.5% YoY; 2Q19: -8.0% YoY), which point to continued weakness in private investment in 3Q19. Meanwhile, private consumption is expected to moderate, but remain supported by stable labour conditions. Number of employees engaged rose in the manufacturing sector (+1.3% YoY; 2Q19: +1.1% YoY) and was stable in the services sector (+2.5% YoY; 2Q19: +2.6% YoY), while wages continued to grow, albeit at a more moderate pace (manufacturing: +3.2% YoY; 2Q19: +3.9% YoY, services: +4.1% YoY; 2Q19: +4.4% YoY).

2019 GDP: While mining sector is expected to weigh on 3Q19 GDP growth, it is anticipated to rebound in the subsequent quarter as supply conditions normalise. However, palm oil is anticipated to enter into low production season while manufacturing and services sector remain susceptible to adverse impacts of unresolved trade tensions which would lead to further pullback in investment and trade activities. Against this environment, we maintain our expectation that BNM will reduce the OPR by 25bps by end-1Q 2020 as global economy continues to exhibit signs of vulnerability while volatility in financial market may affect investment prospects.


Source: Hong Leong Investment Bank Research - 19 Nov 2019

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