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 4.1% YoY to 148.5 points in the fourth quarter of 2023 (3Q23: 5.1% YoY). On a quarterly basis, the index of services exhibited a growth of 0.6% QoQ (3Q23: 3.6% QoQ).

• Apart from the high base effect (the index experienced a robust increase of 11.7% YoY in 4Q22), all the sub-segments registered slower increase during the period. Namely, the Wholesale & Retail Trade, Food & Beverages & Accommodation rose moderately by 4.2% YoY, vs 5.1% YoY growth previously. This is followed by the Finance, Real Estate and Professional (4Q23: 1.0% YoY; 3Q23: 3.0% YoY), Information & Communication and Transportation & Storage (4Q23: 6.6% YoY; 3Q23: 6.9% YoY) and Others Services (4Q23: 7.0% YoY; 3Q23: 8.7% YoY).

• Given the slowdown observed in the final quarter, we believe that the growth of the services sector in the 4Q23 GDP is likely to be subdued. The strong correlation of 98% between the Index of Services and Services GDP suggests a notable impact. We anticipate a modest increase of 4.0% in Services GDP for the 4Q23. To provide context, the DOSM had initially projected an optimistic year-on-year growth of 4.7% for the services sector in the fourth quarter.

• Figure 3 provides a concise summary of other pertinent quarterly statistics for the fourth quarter of 2023. The real GDP (supply side) still exhibits resilience driven by expansions in key sectors such as the agriculture (7.0% of GDP in 3Q23) and mining (5.8% of GDP). However, challenges may arise in the growth trajectory for the final quarter, primarily attributed to potential hindrances in the manufacturing sector, constituting 23.3% of the GDP.

• On the demand side, our analysis suggests that private consumption, comprising 62.1% of GDP in 3Q23, continued to grow at moderate pace. This observation aligns with the moderate performance of the Distributive Trade Index, which recorded an annual increase of 4.2% in 4Q23, versus the 5.0% YoY gain witnessed in the previous quarter. Moreover, the lower trade surplus of RM36.93bn (compared to RM68.24bn a year ago) during the quarter is expected to impact the GDP performance for the period.

• Most economic data released this week by the DOSM indicated that the real GDP for 4Q23 might align closely with the DOSM's advance estimate, falling notably below our optimistic forecast. Notably, the trajectory outlined by DOSM (4Q23E: 3.4%; 2023: 3.8%) could potentially be influenced by lower-than-expected results in the services sector. Using the new estimation rate of 4.0% YoY (vs DOSM’ 4.7% YoY forecast), the 4Q23 GDP is estimated to be at 3.0% YoY (DOSM estimation: 3.4% YoY). Consequently, the 2023 annual growth rate would also be moderating, settling at 3.7% YoY as opposed to the DOSM's forecast of 3.8% YoY. This suggests a more conservative outlook for the economic performance in both the short and full terms.

• The preceding statement serves as an exploratory observation, reflecting our examination of potential scenarios based on adjusted data. This exercise aimed to anticipate possible outcomes given variations in actual results, especially in the services sector. However, our primary objective is to solidify our trajectory for the current year. Initially setting our sights on a 5.0% GDP growth, we acknowledge the need for adjustment, and our priority is to recalibrate this target downward. We will provide a comprehensive update once the DOSM releases the official real GDP data on 16th February

Source: TA Research - 9 Feb 2024