Steady Domestic Demand But Private Consumption Slower

Malaysia’s real GDP expanded strongly by 5.9% yoy in 4Q17, albeit slightly slower than 6.2% in 3Q17, but higher than market expectations of 5.8%. Domestic demand rose by 6.2% yoy in 4Q17 (6.6% in 3Q17), contributing 5.7 percentage points to GDP growth during the quarter (6.0 percentage points in 3Q17). For 2017 as a whole, real GDP grew at a stronger rate of 5.9% as compared with 4.2% in 2016 reflected mainly in stronger exports and healthy domestic demand for the year.

Domestic Demand Still Supporting Malaysia’s Economic Growth

Growth in private consumption reached 7.0% yoy in 4Q17 (7.2% in 3Q17), supported by stable labour market conditions and healthy wage growth. However, when measured against the previous quarter, private consumption contracted by 2.2% qoq in 4Q17 (7.1% in 3Q17), which was also reflected in the services sector during the quarter, where growth in the wholesale and retail trade sub-sector slowed down in 4Q17, signalling some moderation in private consumption.

Private Investment Is Expected to Increase Further in 2018

Growth in private investment increased sharply from 7.9% yoy in 3Q17 to 9.2% in 4Q17, driven mainly by the services and manufacturing sectors. In tandem with the favourable global economy and the need to expand production capacities, capital spending was higher in 4Q17, which was evident across both export- and domestic-oriented industries. Going into 2018, we believe growth in domestic demand should remain the anchor of Malaysia’s economic growth, supported by healthy private consumption and private investment.

Expect 2018 to be a Tale of Two Halves for the Malaysian Economy

However, we believe Malaysia’s real GDP growth had peaked at 6.2% yoy in 3Q17 (5.9% in 4Q17), and will likely to record a steady growth of around 5.5% in 1H18, before slowing down further to 5.0% in 2H18, from the high base effect and slower exports growth. However, with the International Monetary Fund (IMF) expecting global economy to expand by 3.9% in 2018, a revision higher by 0.1 percentage point (3.7% in 2017), we are raising our forecast for Malaysia’s GDP growth to 5.3% in 2018 (5.9% in 2017; 4.2% in 2016), against our earlier projection of 4.9%, to reflect a steady domestic demand. This is also in tandem with the official government forecast of 5.0-5.5%.

Current Account Surplus Widened Slightly to RM12.9bn in 4Q17

Malaysia’s current account surplus widened slightly by RM0.3bn to RM12.9bn in 4Q17 (3.7% of GNI), as compared to RM12.5bn (3.7% of GNI) in 3Q17. This was the largest quarterly surplus since 2Q14 and was largely due to a wider surplus in the goods account, which saw a sizeable increase from RM31.7bn in 3Q17 to RM34.1bn in 4Q17, its highest level since 4Q11.

Current Account Surplus Likely to Remain Sizable in 2018

Going into 2018, we are projecting Malaysia’s export growth to slow, but we believe that the trade surplus will remain healthy in the range of RM95-98bn (RM97.2bn in 2017). We expect the current account to remain in a surplus, but likely to narrow to RM30-35bn projected for 2018 (RM40.3bn or 3.3% of GNI in 2017).

Real GDP Growth Remained Strong at 5.9% in 4Q17

Malaysia’s real GDP growth expanded strongly by 5.9% yoy in 4Q17, albeit slightly slower than 6.2% in 3Q17, but higher than market expectations of 5.8%. This was also the sixth consecutive quarter where the country’s economic growth, reflecting strong exports and steady domestic demand conditions in 4Q17, was higher than consensus expectations. Domestic demand rose by 6.2% yoy in 4Q17 (6.6% in 3Q17), contributing 5.7 percentage points to GDP growth during the quarter (6.0 percentage points in 3Q17). For 2017 as a whole, real GDP grew at a stronger rate of 5.9%, as compared with 4.2% in 2016, reflected mainly in stronger exports and healthy domestic demand for the year.

Source: Affin Hwang Research - 15 Feb 2018