Sharp Slowdown in Economic Growth Due to Weak Net Exports

Malaysia’s real GDP growth slowed sharply to 3.6% yoy in 4Q19 compared to 4.4% in 3Q19, significantly lower than market expectations of 4.1%. This was also its slowest quarterly yoy growth since 3Q09. The sharp slowdown in economic growth during the quarter was due mainly to a decline in net exports, where the contribution to GDP growth fell to -0.7 percentage points in 4Q19, from +1.0 percentage points in 3Q19. However, growth in domestic demand remained strong, with an expansion of 4.9% yoy in 4Q19, from 3.5% in 3Q19, supported by higher total consumption as well as private investment growth. When measured against the previous quarter, real GDP growth remained in positive territory but slowed down to 2.7% qoq in 4Q19 from 3.3% in 3Q19. For the full year of 2019, Malaysia’s real GDP growth slowed from 4.7% in 2018 to 4.3%, its slowest annual growth since 2009, when growth in exports contracted by -1.1% yoy in 2019 (2.2% in 2018), but cushioned by private consumption growth, which expanded by 7.6% in 2019 (8% in 2018).

On a quarterly basis, growth in domestic demand rose by 4.9% yoy in 4Q19 from 3.5% in 3Q19, supported by both private and public consumption. Private consumption growth expanded by 8.1% yoy in 4Q19 (7% in 3Q19), driven by income (3.9% yoy in 4Q19 vs 3.8% in 3Q19) and employment growth (2.2% in 4Q19 vs 2.1% in 3Q19), as reflected in sustained spending on necessities and leisure-related expenditures, possibly due to the year-end festivities as well as the school holidays. Meanwhile, public consumption growth expanded for the second straight quarter to 1.3% in 4Q19 from an increase of 1% in 3Q19, led by higher emolument growth as well as expenditure on supplies and services which declined at a slower pace. As for total investment, it continued to contract for the fourth consecutive quarter, albeit at a slower pace of 0.7% yoy compared to a decline of 3.7% in 3Q19, weighed down by a decline in public investment. Public investment growth contracted by 7.7% yoy in 4Q19, albeit a smaller decline as compared to -14.1% in 3Q19, due to a smaller fall in capital spending by public corporations on the back of weak investment by the General Government. Growth in private investment rose by 4.2% yoy in 4Q19 from 0.3% in 3Q19 due to sustained investments in the services and manufacturing sectors, especially in transport services and construction-related manufacturing sub-sectors.

On the external front, growth in real exports of goods and services declined for the second straight quarter by 3.1% yoy in 4Q19 from -1.4% in 3Q19, dragged by lower demand for manufactured and commodities exports. This was its sharpest drop since 2Q15. Similarly, growth in real imports of goods and services contracted for the fourth consecutive quarter by 2.3% yoy in 4Q19 (-3.3% in 3Q19).

Source: Affin Hwang Research - 13 Feb 2020