Preview

• The latest quarterly indicator from the Department of Statistics Malaysia (DOSM) revealed that the Volume Index of Services continued to expand at a moderate rate of 4.4% YoY, reaching 146.7 points in the third quarter of 2023 (2Q23: 4.6% YoY). This moderation is primarily attributed to a high base effect, as the index experienced a significant surge of 23.1% YoY in the third quarter of last year. On a quarterly basis, the services index exhibited a growth of 2.9% QoQ (2Q23: -0.9% QoQ).

• All sub-segment contributed to the increase, despite moderating from the previous quarter. Namely, the Finance, Real Estate and Professional moderated by 0.2% YoY (2Q23: 1.1% YoY), followed by Information & Communication and Transportation & Storage (3Q23: 6.9% YoY; 2Q23: 7.2% YoY) and Others Services (3Q23: 8.7% YoY; 2Q23: 10.6% YoY). In addition, the Wholesale & Retail Trade, Food & Beverages & Accommodation increased by 5.1% YoY, faster than 4.6% YoY registered in the previous quarter.

• In light of a deceleration in the third quarter in comparison to its antecedent, we believe the services sector's growth in the 3Q23 real Gross Domestic Product (GDP) is poised to fall short of our initial projection of 4.8% YoY, probably at 4.2% YoY, exhibiting a decline from the preceding 4.7% YoY growth recorded in the second quarter of 2023. DOSM previously projected service sector to grow by 4.7% YoY.

• Figure 3 provides a concise summary of other pertinent quarterly statistics for the third quarter of 2023. On a positive note, the real GDP (supply side) still exhibits resilience driven by expansions in key sectors such as the agriculture (6.2% of GDP in 2Q23) and construction (3.6% of GDP). Nonetheless, the mining (6.1% of GDP) and manufacturing (23.6% of GDP) sectors most likely to chart a contraction during the quarter.

• On the demand side, our analysis suggests that private consumption, comprising 60.7% of GDP in 2Q23, continued to grow. This observation aligns with the moderate performance of the Distributive Trade Index, which recorded an annual increase of 5.0% in 3Q23, versus the 4.1% YoY gain witnessed in the previous quarter. However, the lower trade surplus during the third quarter of 2023, amounting to RM59.1bn (compared to RM65bn a year ago), is expected to impact the GDP performance for the period.

• In accordance with our previous estimations, the bulk of the economic data unveiled yesterday by the statistical department have furnished some clues that the 3Q23 real GDP could expand at a more moderate pace. Significantly, this trajectory could potentially deviate from our earlier projections, leaning towards an outcome that falls beneath our initial anticipatory threshold of 3.5% YoY (DOSM estimate: 3.3%), possibly settling around 2.9% YoY, the same rate seen in 2Q23.

• Assuming the forecast materializes, our previously projected target of 4.2% will be revised to 3.9%, while maintaining the expected growth of 4.6% in 4Q23. This is still our preliminary observation, and we may update our forecast trajectory upon the release of 3Q23 GDP data on 17 November 2023.

Source: TA Research - 10 Nov 2023