This was also the case before the GST implementation in April 2015, where consumers have not cut back their purchases sharply in 2Q15 as earlier feared, partly reflecting the country’s stable labour market conditions and steady wage growth. — Bernama photo
KUCHING: Analysts are lowering their growth forecasts for Malaysia’s Gross Domestic Product (GDP) following a lower-than-expected slowdown in the second quarter of 2018 (2Q18) to 4.5 per cent year on year (y-o-y) from 5.4 in 1Q18.
Kenanga Investment Bank Bhd (Kenanga Research) saw that the lower GDP in 2Q18 was below both consensus and house estimate of 5.2 and 5.3 per cents respectively.
“The main driver for 2Q18 growth was domestic demand. Domestic demand expanded by 5.6 per cent y-o-y contributing 5.2 percentage points (ppt) to headline GDP growth compared to 3.8 ppts in 1Q18,” it said in a note yesterday.
“This is mainly due to the strong expansion in private investment and consumption. In total private spending grew 7.5 per cent, contributing 5.5 ppts to headline GDP, partly due to the removal of Good and Services Tax (GST) beginning in June.
“Meanwhile, government spending, fell 1.4 per cent y-o-y YoY, particularly influenced by the unprecedented outcome of the 14th General Election (GE14) in May that brought about a major change in the government. The slowdown in the global tech cycle along with the on-going global trade tension continue to weigh on exports. Hence, exports growth slowed to two per cent from 3.7 in the 1Q18.”
Going into the second half of the year, analysts at Affin Hwang Investment Bank Bhd (AffinHwang Capital) expect growth in private consumption to remain supportive of GDP growth, especially in 3Q18, due to the front-loading purchases by consumers and businesses alike, particularly prior to the implementation of the new sales and services tax (SST), which is expected to be implemented in September 2018.
“While there are some concerns of slowing down in consumer spending, we believe that households, despite having frontloaded their expenditure in 2Q18 and 3Q18, will unlikely cut spending significantly,” it said in a separate note.
“This was also the case before the GST implementation in April 2015, where consumers have not cut back their purchases sharply in 2Q15 as earlier feared, partly reflecting the country’s stable labour market conditions and steady wage growth.
“Going forward, despite healthy domestic demand, the country’s real GDP growth may be influenced by developments in the global environment. Global risks remain substantial, and are likely to be on the downside.”
AffinHwang Capital expected both Malaysia’s exports and manufacturing production to likely experience some slowdown in growth in 2H18, given the likely slower exports to China and EU countries, as well as concerns on the oncoming global trade tensions.
The trade war tension, if escalated, would likely weigh on trade and business sentiment in export-related industries, possibly from higher input costs due to tariffs imposed, especially on China and US imports, it said.
“Due to the lower-than-expected real GDP growth in 2Q18, we are revising our GDP growth forecast lower for 2018 from 5.3 estimated earlier to five per cent currently, in line with the official projection of five per cent,” it added.
“The flat growth envisaged for 2H18 at around five per cent is also partly on account of the higher base effect in the corresponding period of last year, where growth of exports will likely moderate.”
While domestic demand remaining healthy, supported by private consumption, AffinHwang Capital said the strength and sustainability of Malaysia’s real GDP growth in the quarters ahead hinged importantly on developments in the global environment, where the risks to the global outlook have tilted to the downside.
“As such, we are also lowering our GDP growth forecast for 2019 to five per cent, from 5.3 forecasted earlier.”
Similarly, Kenanga Research predicted for Malaysia’s momentum to slow further in 2H18.
“So far, the post-GE14 period brought a mix impact on economic growth. Higher private consumption growth following the government’s decision to scrap the GST has so far been positive on growth.
“But lower fiscal spending and weak external demand continue to have opposite effect. This has resulted in the 1H18 GDP growth to moderate to 4.9 per cent y-o-y.
“On the expectation that the growth momentum to slow further in 2H18 due to the impact of a weaker global trade because of the impact of trade war and further slowdown in domestic demand we are projecting economic growth to moderate to 4.7 per cent in the 2H18.
“Hence, we are revising our 2018 GDP growth forecast to 4.8 per cent from 5.1. We are also revising our 2019 GDP forecast to 4.7 per cent from five, on the expectation of further slowdown in the global economy due to deterioration on global trade and a weaker US economy.”