OVERVIEW

● Growth accelerated. GDP growth marked its first acceleration since the last five quarters, picking up to 4.7% YoY in 4Q18 from 4.4% YoY in 3Q18, matching consensus median forecast (Reuters), but a tad below house estimate of 4.8%. On a QoQ basis, it moderated to 3.5% from 3.8% in the 3Q18, though still remaining above the 10-year average of 2.3%. On a similar direction, seasonally adjusted 4Q18 GDP eased to 1.4% QoQ from 1.6% in the 3Q18, indicating slowing growth momentum ahead. For the whole year of 2018, growth dipped to 4.7% from 5.9% in 2017.

● Resilient private consumption and recovery in external demand underpinned 3Q18 growth… The predominant driver of growth came from domestic demand, mostly in the form of private consumption, contributing 4.5 percentage points (ppt) to the overall GDP growth (3Q18: 5.0 ppt), while sustaining a commendable growth of 8.5% YoY (3Q18: 9.0%), despite moderating slightly, in part due to the reinstatement of Sales and Services Tax (SST) in September following a three-month tax holiday period marked by the abolishment of the Goods and Services Tax (GST) in June. The Malaysian economy was further lifted by a positive turnaround in exports, expanding 1.3% (0.9 ppt), after registering a decline of 0.8% (-0.6 ppt) in the previous quarter. The surge was among others driven by a front-loading of imports by the US, which potentially have benefitted intermediate goods producers, prior to the announcement of the 90-day halt to new tariff on Chinese goods. As imports increased only by a marginal 0.2% (3Q18: 0.1%), net exports rebounded sharply by 5.9% (3Q18: -13.4%).

● …outweighing persistent weakness in government spending. In line with expectation, a more prudent stance taken by the current government with regards to fiscal consolidation and public infrastructure investment continued to weigh on public sector spending, shaving off 0.5 ppt (3Q18: -0.4 ppt) from the total 4Q18 GDP growth. Meanwhile, changes in stocks retained its contraction for the fourth consecutive quarters, cutting 1.2 ppt off from the overall GDP growth, foretelling that producers may proceed to replenish inventories in the next quarters, in order to keep up with demand albeit at a diminishing rate as the economy slows.

● Ease in commodity-specific shock lifted growth on the supply side. Natural gas production facility interruptions, adverse weather conditions and bulging palm oil stockpiles, which have constrained the performance of the commodity-related sectors in the preceding periods, have started to recede in the final quarter of 2018, resulting a growth turnaround for the mining sector (0.5% YoY; 3Q18: -4.6%) and a smaller contraction for the agriculture sector (- 0.4%; 3Q18: -1.4%).

● Services, manufacturing and construction sectors registered sustained expansion. Accounting for 83.6% share of the Malaysian economy, the three sectors, led by the services sector contributed 5.0 ppt to the overall GDP growth. The services sector rose 6.9% YoY in 4Q18, driven by the retail and wholesale trade, as well as the communication sub-sector, which has been buoyed by improved broadband demand amid reduction in prices spurred by the implementation of the Mandatory Standard Access Pricing (MSAP). For the manufacturing sector, in spite of the strength observed in the electrical and electronics sub-sector, growth softened to 4.7% from 5.0% in 3Q18, on lower petroleum and chemical production. Against a backdrop of deferment and termination of mega-infrastructure projects, the construction sector performed more modestly, growing by 2.6% from 4.6% in 3Q18, attributable to weaker civil engineering and specialised construction actives, such as roofing activities, electrical installation and site preparation.

Source: Kenanga Research - 15 Feb 2019