We maintain our 1Q19 GDP growth estimate at +4.4% YoY (4Q 2018: +4.7% YoY) following the release of various indicators. The moderation is expected to be driven by broad-based moderation across most sectors, larger contraction in mining index that offset the rebound in agriculture sector. We maintain our 2019 GDP at +4.6% YoY (2018: +4.7% YoY). Nevertheless, recent trade escalation between US and China present a downside risk to our forecast as a prolonged trade dispute would lead to further pullback in investment and trade activities.

We maintain our 1Q19 growth estimate at +4.4% YoY (4Q18: +4.7% YoY). 1Q19 GDP will be released on 16th May 2019.

1Q19 GDP: Growth is expected to be lower, following broad-based moderation across most sectors and larger contraction in mining index that offset the rebound in agriculture sector.

The agriculture sector is anticipated to record a rebound following faster pace of growth in palm oil production (+10.2% YoY; 4Q18: -2.9% YoY) and rubber production (+12.1% YoY; 4Q18: -17.9% YoY) due to better weather conditions. In the mining sector, growth is anticipated to decline at a larger pace due to bigger contraction in crude oil production (-2.8% YoY; 4Q18: -1.4% YoY) and reversal of natural gas production (-1.3% YoY; 4Q18: +0.4% YoY). The larger contraction may be due to unplanned shutdown or fire accident (LNG complex in Bintulu) that temporarily affected production. Nevertheless, LNG production is expected to pick up further in 2019 as the disruption caused by the pipeline gas leak in 2018 is anticipated to recover. Manufacturing sector is forecasted to continue its deceleration trend as manufacturing IPI showed a moderation of +4.0% YoY (4Q18: +4.5% YoY), driven by slower growth in the external-oriented sector (+3.4% YoY; 4Q18: +5.0% YoY) that offset the faster growth in domestic-oriented sector (+5.1% YoY; 4Q18: +3.5% YoY). In the services sector, retail trade activity moderated to +9.3% YoY (4Q18: +11.8% YoY) following pullback in consumer sentiment (Malaysia consumer sentiment index: 85.6; 4Q18: 96.8). Nevertheless, despite the slower retail trade activity, it was still stronger than GST period in 2018 (average January-May 2018: +7.2% YoY). Consumption activity on motor vehicle sales grew at a stronger pace of +4.3% YoY (4Q18: +2.0% YoY) partly due to new product launches (Proton X70). In the construction sector, the slower growth was led by decline in residential (-7.4% YoY; 4Q18: -9.2% YoY) and non-residential buildings (-4.4% YoY; 4Q18: +2.5% YoY) that offset continued growth it civil engineering activity (+9.5% YoY; 4Q18: 14.3% YoY).

On expenditure front, net export is anticipated to contribute to overall GDP due to higher trade surplus during 1Q19 period (RM37.4bn; 1Q18: RM33.4bn). While exports declined slightly by -0.9% YoY (4Q18: +8.2% YoY), imports fell at a larger pace of - 2.9% YoY; 4Q18: +5.7% YoY). The fall in imports was largely due to decline in capital goods, which point to weaker private investment in 1Q19. Private consumption is forecasted to grow at a more moderate pace as zero tax holiday period fades and sentiment remained weak. Nevertheless, consumption remains supported by positive labour market and continued wage growth (manufacturing sector: +7.0% YoY; 4Q18: +9.8% YoY; services sector: +3.8% YoY; 4Q18: +4.1% YoY).

2019 GDP: We maintain our forecast for GDP to record moderate growth of +4.6% YoY (2018e: +4.7% YoY). While we anticipate commodity sectors (agriculture and mining) to rebound as temporary factors continue to ease, this is anticipated to be offset by slower growth in manufacturing, services and construction activity as global trade moderates and consumers adjust to SST 2.0 amid lower consumer sentiment. However, recent escalation of trade tensions could lead to further pullback in investment and trade activities, which presents a downside risks to our forecast.

Source: Hong Leong Investment Bank Research - 14 May 2019