Exceeding forecasts – Malaysia’s Real Gross Domestic Product (GDP) for the first quarter of 2020 grew marginally at +0.7% y-o-y as compared +3.6% y-o-y during fourth quarter of 2019. We deem 1Q20 result to grow at a negative trajectory, -2.0% y-o-y, as national GDP is weakened by Covid-19 pandemic, whilst market forecasts growth of -1.0% y-o-y. 1Q20’s GDP was underpinned by easing growth of all production side as well as moderation of Private consumption, GFCF (Investment) and Net trade from expenditure side. After being seasonally adjusted, the 1Q20 GDP dropped to -2.0% as compared to +0.6% in 4Q19.

Mining & quarrying as well as Agriculture were still in the red; Construction declined to negative trajectory – Mining & quarrying remained its contraction for three consecutive months, which contracted -2.0% y-o-y during 1Q20 from -3.4% y-o-y during 4Q19 due to weak growth from Crude oil & condensate (-5.2% y-o-y vs 4Q19: -6.2% y-o-y) which offset mild growth in Natural gas production (+0.1% y-o-y vs 4Q19: -2.1% y-o-y). Meanwhile, Agriculture extended to -8.7% y-o-y (vs 4Q19: -5.7% y-o-y) following subdued growth in Oil palm (-22.0% y-o-y vs 4Q19: -16.9% y-o-y), Forestry & logging (- 23.6% y-o-y vs 4Q19: -19.0% y-o-y), Fishing (-7.6% y-o-y vs 4Q19: +2.7% y-o-y) and Rubber (-18.3% yo-y vs 4Q19: +1.8% y-o-y) despite better growth in Livestock (+8.5% y-o-y vs 4Q19: +7.5% y-o-y) and Other agriculture (+6.3% y-o-y vs 4Q19: +6.1% y-o-y). On the same note, Construction turned to red, which depleted to -7.9% y-o-y as compared to +1.0% y-o-y in previous quarter as it was dampened by declined in all segments such as Residential buildings production (-8.1% y-o-y vs 4Q19: +3.0% y-o-y), Non-residential buildings production (-11.6% y-o-y vs 4Q19: -10.0% y-o-y), Civil engineering (-5.1% y-o-y vs 4Q19: -6.7% y-o-y) and Specialised construction activities production (-9.0% y-o-y vs 4Q19: +4.5% y-oy).

Manufacturing and Services sectors easing its growths – Both Manufacturing and Services sectors grew + 1.5% y-o-y and +3.1% y-o-y respectively, slightly moderated from previous quarter of +3.0% y-o-y and +6.1% y-o-y respectively. Manufacturing sector recorded lower growth since 1Q13 and it was deteriorated by sharp decline in Vegetables & animal oils & fats (-3.1% y-o-y) as well as Transport equipment, other manufacturing & repair (-1.5% y-o-y). However, it was underpinned by Petroleum, chemical rubber & plastic products (+3.9% y-o-y), E&E products (+2.2% y-o-y) and Woods products, furniture, paper products & printing (+1.3% y-o-y). Moreover, Services sector was soothed in view of slower growth in Retail (+2.1% y-o-y vs 4Q19: +7.3% y-o-y).

Public and Private consumption posted stellar growths; Gross fixed capital formation (GFCF) extended contraction – Private final consumption grew higher albeit in a modest mode, growing +6.7% y-o-y (vs 4Q19: +8.1% y-o-y), buoyed by massive growths in Food & non-alcoholic beverages, Communication as well as Housing, water, electricity, gas & others. Moreover, Public final consumption soared to +5.0% y-o-y during 1Q20 from +1.3% y-o-y during 4Q19, arising from higher spending and supplies. Nevertheless, Gross fixed capital formation (GFCF) extended its decline to -4.6% y-o-y from -0.7% y-o-y in 4Q19 following decline in Structure (-4.0% y-o-y vs 4Q19: +0.1% y-o-y), Machinery & equipment (-6.2% y-o-y vs 4Q19: -2.6% y-o-y) as well as Other assets (-2.4% y-o-y vs 4Q19: +1.4% y-oy).

Disappointing net export – Export and Import contracted to -7.1% y-o-y (vs 4Q19: -3.6% y-o-y) and -2.5% y-o-y (vs 4Q19: -2.2% y-o-y) respectively. As such, trade surplus declined further and led to widening net exports of -4.5% y-o-y during 1Q20 (vs 4Q19: -1.4% y-o-y).

Foreseeing a negative GDP growth for 2020 – Looking ahead, we reckon that the country would achieve negative GDP growth for 2020 as we expect economic expansion will be dented by severe slowdown in global growth, lower commodity price in view of Covid-19 pandemic outbreak. We expect GDP for the next quarter will fall to negative trajectory as extension of movement controlled ordered (MCO) imposed by government to halt country’s economic development. For production side, we expect slowdown in Manufacturing in view of disruption of business activities following Covid-19 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 growth will be minimal, dampened by pandemic outbreak which affects business and consumer spending despite lower OPR. As such, we retain our 2020 GDP forecast growth of -2.0% y-o-y. Overall, we foresee the external factors could pose headwinds to the nation’s GDP especially with the prevailing Sino-US trader war on top of the Covid-19 outbreak.

Source: JF Apex Securities Research - 14 May 2020