Substantially below expectations – 4Q19’s Malaysia’s Real Gross Domestic Product (GDP) soothed to +3.6% y-o-y (vs 3Q19: +4.4% y-o-y), substantially below our in-house and market forecast. The easing momentum was mainly due to contraction in Mining & quarrying as well Agriculture from production side while Exports and Imports from expenditure side. After being seasonally adjusted, the 4Q19 GDP registered a growth of +0.6% as compared to +0.9% in 3Q19.

As for full year of 2019, Malaysian economy moderated to +4.3% y-o-y from +4.7 y-o-y in previous year, with a total value of RM1.4 trillion at constant prices and RM1.5 trillion at current prices. Our nation’s GDP in 2019 was below our in-house and market expectation of +4.6% y-o-y and +4.5% y-oy respectively. The slower GDP performance during 2019 was due to subdued growths from all production sides except for Agriculture sector coupled with contraction in Gross fixed capital formation (GFCF) from expenditure side.

Growth from production side dampened by contraction in Mining & quarrying as well as Agriculture sector – Mining & quarrying remained in the red as the sector contracted -2.5% y-o-y (vs 3Q19: -4.3% y-o-y) in view of negative growth in Crude oil & condensate (-6.2% y-o-y vs 3Q19: -14.4% yo-y). During 2019, Mining & quarrying sector narrowed its slump to -1.5% y-o-y (vs 2018:-2.6% y-o-y). On the same note, Agriculture turned to negative growth during 4Q19 to -5.7% y-o-y (vs 3Q19: +3.7% y-oy) due to Oil palm (-16.9% y-o-y vs 3Q19:+8.4% y-o-y) and Forestry & logging (-16.9% y-o-y vs 3Q19:+8.4% y-o-y). Despite contraction recorded during the last quarter of 2019, Agriculture’s full year growth, however, improved +1.8% y-o-y as compared to +0.1% y-o-y during 2018.

Construction and Services improved; Manufacturing eased to the lowest – Construction sector rebounded from negative growth during 4Q19 to +1.0% y-o-y (vs 3Q19: -1.5% y-o-y), thanks to stellar sub-sector growths such as Civil engineering (+6.8% y-o-y vs 3Q19:+4.7% y-o-y), Residential buildings (+3.0% y-o-y vs 3Q19:-3.2% y-o-y) and Specialised construction activities (+4.4% y-o-y vs 3Q19:+0.9% y-o-y). Besides that, Services also posted a stellar growth of +6.1% y-o-y in 4Q19 from +5.9% y-o-y in 3Q19 buoyed by Information & communication (+6.7% y-o-y vs 3Q19:+6.0% y-o-y) and Food & beverages and Accommodation (+10% y-o-y vs 3Q19:+9.4% y-o-y). However, both Construction and Services sectors eased to +0.1% y-o-y and 6.1% y-o-y respectively during 2019 against +4.2% y-o-y and +6.8% y-o-y respectively during 2018. Manufacturing wise, growing +3.0% y-o-y during 4Q19 (VS 3Q19: +3.6% y-oy), the lowest growth recorded since few years ago. Easing momentum was due to moderate growth from both export and domestic oriented sides such as Petroleum, chemical rubber & plastic products (+2.6% yo-y vs 3Q19:+2.9% y-o-y), E&E and optical products (+2.5 y-o-y vs 3Q19:+3.1% y-o-y) as well as Transport equipment, other manufacturing & repair (+4.4 y-o-y vs 3Q19:+6.1% y-o-y). For 2019, Manufacturing grew +3.8% y-o-y as compared to +5.0% y-o-y in 2018.

Soothing growth from expenditure side – Public and Private final consumption expenditure rose +1.3% y-o-y and +8.1% y-o-y respectively (vs 3Q19: +1.0% y-o-y and +7.0% y-o-y respectively), propelled by higher spending in Supplies & services, Food & non-alcoholic beverages, Restaurant & hotel as well as Transport. However, Public and Private final consumption expenditure soothed to +2.0% y-o-y and +7.6% y-o-y respectively from +3.3% y-o-y and +8.0% y-o-y in 2018. Moreover, Gross fixed capital formation (GFCF) narrowed its decline to -0.7% y-o-y from -3.7% y-o-y in 3Q19, thus, translating into - 2.1% y-o-y for full year 2019 (vs 2018: +1.4% y-o-y). Disappointing GFCF during 4Q19 was due to slower investment in Machinery & equipment (-2.6% y-o-y vs 3Q19:-7.4% y-o-y) and Other Asset (+1.4% y-o-y vs 3Q19:+3.6% y-o-y).

Positive net export growth for 2019 – Export and Import contracted to -3.1% y-o-y (vs 3Q19: - 1.4% y-o-y) and -2.3% y-o-y (vs 3Q19: -3.3% y-o-y) respectively. Therefore, trade surplus narrowed to - 9.8% y-o-y which translated into -0.8% y-o-y growths in net exports (vs 3Q19: +1.9% y-o-y). For 2020, both export and imports depleted -1.1% y-o-y (vs 2018: +2.2% y-o-y) and -2.3% y-o-y ((vs 2018: +1.3% y-o-y) which translated into positive net exports (+1.2% y-o-y vs 2018: +1.0% y-o-y).

Foreseeing a soft GDP growth for 2020 – Looking ahead, we reckon that the country would achieve moderate GDP growth for 2020 as we expect economic expansion will be slow due to gradual slowdown in global growth, lower commodity price and prevailing Covid-19 outbreak. For production side, we expect slowdown in Manufacturing in view of China’s business activities have been disrupted following virus outbreak. Moreover, Agriculture sector is expected to remain struggle following uncertainty in commodity price as well as lower production. For expenditure side, we expect Private Consumption to grow slower dampened by Wuhan virus outbreak as it will affect business and consumer spending despite lower OPR. As such, we cut our 2020 GDP forecast growth to +4.4% y-o-y from +4.5% y-o-y previously. Overall, we foresee the external factors could pose headwinds to the nation’s GDP especially with the prevailing SinoUS trader war as well as Covid-19 outbreak.

Source: JF Apex Securities Research - 13 Feb 2020