● Growth moderated to a four-quarter low in 3Q19 (4.4% YoY; 2Q19: 4.9%), matching consensus and house estimate
- QoQ: climbed to a three-quarter high (3.3%; 2Q19: 2.1%).
- Seasonally adjusted QoQ: eased for the fourth straight quarters (0.9%; 2Q19: 1.0%), signalling subsiding growth momentum ahead.
● Weaker growth was evident across external and domestic fronts, with the latter led by public investment and private consumption
- Domestic demand (3.5%; 2Q19: 4.6%): weakest since 4Q16 (3.2%)
- Net exports (15.9%; 2Q19: 22.9%): trade tensions, tech downcycle and growth moderation in major economies weighed on trade performance.
● Sector-wise, growth moderation was observed across the board, led by the mining and manufacturing sectors
- Mining (-4.3%; 2Q19: 2.9%): flipped into a contraction, as crude oil production was disrupted by plant maintenance activities in East Malaysia.
- Manufacturing (3.6%; 2Q19: 4.3%): softened on tepid external demand, particularly for orders of E&E goods.
- Services (5.9%; 2Q19: 6.1%): slowed as lower growth in retail trade and finance outweighed improvement in wholesale trade.
- Construction (-1.5%; 2Q19: 0.5%): declined largely due to a major slowdown in specialised construction (0.9%; 2Q19: 4.7%) and non-residential segments (- 12.0%; 2Q19: -9.1%), amid commercial property overhang. Civil engineering, its biggest component, held up (4.7%; 2Q19: 5.4%) but on a downward trend due to the higher base effect.
- Agriculture (3.7%; 2Q19: 4.2%): eased on weaker oil palm production, reflective of the negative lag impact from the weak El-Niño phenomenon experienced since 4Q18 until 2Q19.
● GDP growth slowdown to extend into 4Q19 and 2020, with balance of risk remain tilted to the downside
- Continued elevated trade tensions, with the signing of the phase-1 US-China trade deal delayed and existing tariffs remain in place, exerting pressure on trade activities.
- Geopolitical disputes (eg. US-Iran, US-North Korea, Brexit) to uplift financial market volatility and global policy uncertainty, weighing on commodity prices and resulting in delayed global investment and asset allocation decisions in both advanced and emerging markets.
- These external factors would weigh on Malaysia’s growth prospect, albeit partially weathered by domestic activities, in particular through improved contribution from public investment as the revived infrastructure projects resume construction works, providing favourable spillovers to other supporting sectors.
- Against this backdrop, 4Q19 growth forecast maintained at 4.0% with a whole year projection of 4.5% (2018: 4.7%). As for 2020, growth is expected to moderate further to 4.3%.
● Heightened probability of a rate cut by the BNM in the 1H20, given the prevalent state of uncertainty in both the global and domestic economy
- With unfavourable economic data and prospects of deeper economic downturn, we opine BNM may want to act soon, with at least another rate cut of 25 basis points, bringing the OPR to settle at 2.75% by end-1Q20.
Source: Kenanga Research - 18 Nov 2019
Created by kiasutrader | Aug 26, 2024