Domestic Demand Supported Mainly by Private Consumption

Malaysia’s real GDP growth slowed to 4.5% yoy in 1Q19 (4.7% in 4Q18), but was slightly above market expectation of 4.3%, supported by healthy growth in private consumption. However, growth was weighed down by the decline in gross fixed capital formation (GFCF), which shaved GDP growth by 0.9 ppts (+0.1% ppts in 4Q18). Growth in public investment declined sharply by 13.2% yoy in 1Q19 (-5.9% in 4Q18), due to lower capital spending by the Government as well as public corporations. Similarly, growth in private investment slowed sharply from 5.8% yoy in 4Q18 to 0.4% in 1Q19, reflecting a continued cautious business sentiment as well as lower capital expenditures as a result of heightened uncertainty over global trade negotiations and weaknesses in the broad property segment. Nevertheless, there were some improvement in spending on large multi-year projects, particularly in the primary-related manufacturing and utilities services sub-sectors, which provided some cushion to private investment growth.

During 1Q19, growth in domestic demand slowed from 5.7% yoy in 4Q18 to 4.4%, but private consumption remained supportive of economic growth, expanding by 7.6% yoy in 1Q19, albeit slower than 8.4% in 4Q18, supported by steady income as well as employment growth. Growth in public consumption rose at a faster rate of 6.3% yoy in 1Q19 (4.0% in 4Q18), driven by higher growth in spending on supplies and services. On the external front, slower GDP growth was also reflected in lower contribution from net exports to GDP, which dropped by 0.8 percentage points in 1Q19, as compared to the positive contribution of 3.2 percentage points in 4Q18.

Slowdown in Services and Manufacturing Sectors in 1Q19

From the supply side, both the services and manufacturing sectors registered slower growth in 1Q19, with service sector growth moderating to 6.4% yoy from 6.9% in 4Q18, while growth in the manufacturing sector eased to 4.2% yoy in 1Q19 from 4.7% in 4Q18. Slower growth in the services sector was reflected in growth in the wholesale and retail trade subsector, affected by normalisation after the tax holiday but partly mitigated by better car sales amid new model releases. Growth in the finance and insurance sub-sector was sustained, due to higher insurance premiums relative to claims, which offset slower financing. Meanwhile, slower growth in the manufacturing sector was weighed down by the slowdown in electrical and electronic (E&E), due to lower global demand for semiconductors; demand for automotive semiconductors was also lower, prompted by the implementation of stricter vehicle emission standards in the EU as well as expiring tax rebates for cars in China.

Source: Affin Hwang Research - 17 May 2019