The manufacturing sector, based on the Nikkei Malaysia Manufacturing Purchasing Managers' Index or PMI, observed a deep decline in business conditions in December. The headline PMI fell to a six-month low to 46.8 in December from 48.2 in November. The demarcation between expansion and contraction is 50. The data points to the sharpest deterioration in the health of the goods-producing sector since May. Besides, we noticed forward-looking gauges also indicate downside risks with overall demand to be weak, thus causing companies to become less willing to hold stocks.

On that note, we foresee growth prospects to remain weak. In our view, 4Q2018 GDP should ease to around 4.0% to bring the full-year growth to 4.6%. With our base case GDP outlook for 2019 at 4.5% with the upside at 4.8%, we foresee further weakening pressure on growth in 1Q2019. We believe the economy should start to register slight improvement in the 2Q2019 and pick up thereafter, partly benefitting from the low base besides support coming from domestic activities, foreign direct investments and complemented by exports as the electronics cycle slows down, added with softer commodity prices.

• The manufacturing sector, based on the Nikkei Malaysia Manufacturing Purchasing Managers' Index or PMI, observed a deep decline in business conditions in December. The headline PMI fell to a six-month low to 46.8 in December from 48.2 in November. The demarcation between expansion and contraction is 50.

• The data points to the sharpest deterioration in the health of the goods-producing sector since May. It also extended the current period of decline to two months. The drag largely came from severe reductions in production and new businesses. Besides, we noticed forward-looking gauges also indicate downside risks with overall demand to be weak, thus causing companies to become less willing to hold stocks.

• On that note, we foresee growth prospects to remain weak. In our view, 4Q2018 GDP should ease to around 4.0% to bring the full-year growth to 4.6%. With our base case GDP outlook for 2019 at 4.5% with the upside at 4.8%, we foresee further weakening pressure on growth in 1Q2019. We believe the economy should start to register slight improvement in the 2Q2019 and pick up thereafter, partly benefitting from the low base besides support coming from domestic activities and complemented by exports as the electronics cycle slows down, added with softer commodity prices.

• The strong foreign approved investment amounting to RM48.8bil as of 3Q2018, which is an all-time high, is expected to support growth in 2019. Growth drivers are expected to come from petroleum refineries with RM17.2bil investment being approved, followed by E&E (RM10.2bil), basic metal products (RM5.7bil), chemical & chemical products (RM4.6bil), and rubber products (RM3.5bil).

• Besides, agriculture, mining, and plantation & commodities saw a notable increase in approved investment with 54 projects as of 3Q2018 versus 48 in 2017. Also, investment in the services sector will continue to boost growth largely coming from local players with RM60.4bil approved investments compared with RM96bil in 2017 while foreign investment remained muted at RM9.5bil as of 3Q2018 from RM28.5bil in 2017.

Source: AmInvest Research - 3 Jan 2019