We were the only Southeast Asian nation to report an acceleration in 2Q2019 GDP growth by 4.9% as the region grappled with softening global demand and the escalating US-China trade war. But for 3Q2019, the GDP came in much slower at 4.4%, bringing the first three quarter average to 4.6%. On the whole, growth was supported by private consumption and net exports due to a collapse in imports.

• To achieve the 4.7% growth target, the final quarter will have to come in at 5%. For this to happen, we need stronger private consumption and a bigger net export contribution which either means higher exports or a sharper drop in imports. We have decided to maintain our full-year base case growth of 4.5% given the challenges on the external and domestic fronts. And to achieve our base-case projection, the final quarter will need to come in at 4.2%, which seems more “acceptable”, based on the current economic indicators that are all pointing towards a softer 4Q2019 GDP. We have now placed an 80% probability of an OPR cut in January 2020.

• The 3Q2019 GDP of 4.4% fell in line with consensus but was slightly higher than our projection of 4.3%. With that, the average first three quarters of GDP is now at 4.6%.

• For the economy to achieve the full-year official growth projection of 4.7%, the final quarter will have to come in at 5%. To achieve our growth target of 4.5% for 2019, the final quarter will have to register a growth of 4.2%

• From the sectoral perspective, the 3Q showed lower growth in key sectors such as services, manufacturing and agriculture, as well as a decline in mining and construction activities.

• On the demand side, the contribution from private consumption as well as net exports (exports -imports) continued to support growth during the quarter.

Can we achieve the 4.7% official full-year growth for 2019?

• Looking at the ongoing challenges and uncertainties in the external front, headwinds in exports will remain. As a trading nation, these are expected to dent growth. The question then will be how much can domestic activities buffer the external headwinds.

• Focusing on domestic activities, private consumption has been lending support to the economy over the past three quarters with an average growth of 7.5%. Possibilities for private consumption to remain at 7% or slightly higher in the final quarter remain, driven by the festive seasons and back-to-school spending. But the upside could be fairly muted owing to increasing trends of bad loans plus declining consumer sentiment.

• On the investment side, it is expected to remain weak. Declining business sentiment, cash flow issues, poor orders and a drop in inventory point towards a slower capital expenditure. The challenges come from both external and domestic. This is clearly reflected by the net exports, which on average, grew by 16.6%, mainly due to the collapse in imports on average by -2.3%.

• Underpinned by challenging external and domestic environments, added with a stronger 4Q2018 GDP growth of 4.7%, it can be fairly challenging to achieve the 2019 target of 4.7%. Current economic indicators are pointing towards a softer 4Q2019 GDP. Hence, we prefer to maintain our base-case growth of 4.5% for 2019. We have now placed an 80% probability of an OPR cut in January 2020.

Source: AmInvest Research - 18 Nov 2019