Within market expectation but below ours – Malaysia’s Real Gross Domestic Product (GDP) only grew 4.4% y-o-y during 3Q19 as compared to previous quarter of +4.9% y-o-y, mainly due to easing momentum seen in all sectors for both production and expenditure sides. The result was in line with market expectation but substantially below our forecast. Growth in production side was underpinned by positive growths in Services, Manufacturing and Agriculture sectors. Meanwhile, growth in expenditure side was aided by Private and Public final consumption albeit in a modest mode. As for 9M19, GDP grew +4.6% y-oy from +4.8% y-o-y during 9M18 following slower growths in Services, Manufacturing, Mining & quarrying for production side as well as Gross fixed capital formation (GFCF) and Net exports for expenditure side.

For production side, Mining & quarrying as well as Construction fell to negative growths as both sectors contracted -1.5% y-o-y and -4.3% y-o-y respectively during 3Q19 from +0.5% y-o-y and +2.9% y-o-y in 2Q19. Mining & quarrying returned to contraction after rebounding in the previous month due to uninspiring production in natural gas (+3.2%y-o-y vs 2Q19: +8.9% y-o-y) and crude oil (-12.3% y-o-y vs 2Q19: -2.6% y-o-y). Moreover, Construction turned to the red for the first time since past eight years following drop in non-residential buildings (-11.6% y-o-y vs 2Q19: -9.3% y-o-y) and residential (-2.7% y-oy vs 2Q19: -1.1% y-o-y). However, civil engineering and specialised grew moderately to +4.7% y-o-y (vs 2Q19:+5.4% y-o-y) and +0.9% y-o-y (vs 2Q19:+4.7% y-o-y) respectively. Service sector which constituted the higher percentage from total production (57.8%), growing at a modest growth to +5.9% yo-y from +6.1% y-o-y in the previous quarter. Service sector was buoyed by growths in wholesale trade (+6.2% y-o-y vs 2Q19: +4.8% y-o-y), food & beverages (+10.2% y-o-y vs 2Q19: +10.1% y-o-y), private health services (+6.1% y-o-y vs 2Q19: +5.5% y-o-y) and other services (+5.5% y-o-y vs 2Q19: +5.2% yo-y). Besides, Manufacturing and Agriculture also grew at moderate paces to +3.6% y-o-y and +3.7% y-o-y respectively (vs 2Q19: +4.3% y-o-y and +4.2% y-o-y) as spurred by food processing (+11.0% y-o-y vs 2Q19: +7.3% y-o-y), leather & related products (+6.0% y-o-y vs 2Q19: +5.7% y-o-y) and wood products (+5.9% y-o-y vs 2Q19: +4.6% y-o-y) for Manufacturing sector. As for Agriculture sector, it was aided by rubber (+7.3% y-o-y vs 2Q19: +2.1% y-o-y), livestock (+7.0% y-o-y vs 2Q19: +6.1% y-o-y) and marine fishing (+3.6% y-o-y vs 2Q19: +1.9% y-o-y).

Expenditure wise, Public final consumption expenditure was the only segment showed a marginal growth while other sectors experienced abating growths. Public final consumption expenditure grew merely at +1.0% y-o-y from +0.3% y-o-y following higher spending in supplies and services. Nevertheless,Private final consumption expenditure remained the main contributor for expenditure side, but the growth slightly eased to +7.0% y-o-y (vs 2Q19: +7.8% y-o-y). Growth in Private final consumption expenditure was buoyed by food & non-alcoholic beverages, transport as well as restaurants & hotels. However, Gross fixed capital formation (GFCF) widened its contraction to -3.7% y-o-y from -0.6% y-oy in 2Q19 following slower investment in structure and machinery & equipment (-2.4% y-o-y and -7.4% yo-y respectively). Overall, GFCF was bogged down by Public sector (-14.1% y-o-y vs 2Q19: -9.0% y-o-y) which offset minor growth in Private sector (+0.3% y-o-y vs 2Q19: +1.8% y-o-y).

Narrowing net export growth – Both Export and Import contracted to -1.4% y-o-y (vs 2Q19: +0.1% y-o-y) and -3.3% y-o-y (vs 2Q19: -2.1% y-o-y) respectively. As such, trade surplus grew to +15.9% y-o-y which translates into +1.9% y-o-y growths in net exports (vs 2Q19: 2.2% y-o-y). Following the contraction in the first nine months of this year for both exports and imports (-1.1% y-o-y and -3.3% y-o-y respectively), we reckon that exports and imports to register negative growths in 2019 (vs 2018: Exports: +6.8% y-o-y, Imports: +4.9% y-o-y) amid prevailing trade war between the US and China as well as slowing global economic activities. Besides, we also anticipate trade performance to remain subdued in the last quarter of the year due to high base effect.

Source: JF Apex Securities Research - 18 Nov 2019