KUCHING: As signs of a slowdown begin to weigh on Malaysia’s manufacturing activities on the back of slow recovery in mining, analysts expect Malaysia’s growth in the last quarter of 2018 to moderate up into the new year.
RHB Research Institute Sdn Bhd (RHB Research) economist Vincent Loo saw that overall, signs of a slowdown in external demand have begun to weigh on Malaysia’s manufacturing activities, while the recovery in the mining sector remains slow.
As a result, economic activities in the fourth quarter of 2018 (4Q18) are expected to ease further after the tax holiday during June to August 2018.
“All in, we expect 4Q18 GDP growth to moderate to 4.2 per cent year on year (y-o-y) from 4.4 per cent registered in 3Q,” he said in a report yesterday. “We expect Malaysia’s economy to sustain at a slow pace of 4.6 per cent for 2019 as the global environment turns more challenging amidst rising trade protectionism and rising global interest rates.
This was on the back of Malaysia’s November 2018 Industrial Production Index (IPI) retracing to 2.5 per cent y-o-y from 4.3 per cent in the previous month.
This was lower than RHB’s estimate of 4.3 per cent, but slightly higher than Bloomberg’s consensus of 2.3 per cent. This comes as growth of manufacturing output decelerated in tandem with a slump in exports, while mining activity fell back into decline.
As it stands, manufacturing output grew at the slowest pace in 2.5 years of 3.5 per cent y-o-y in November 2018 from 5.4 in October 2018.
This was dragged by a slowdown across most subsectors, such as electrical and electronics (E&E) products, petroleum, chemicals, rubber and plastics, transport equipment, food and beverages, metals, and wood products.
These were, however, cushioned somewhat by a pick-up in manufactures of textiles, wearing apparel and footwear.
At the same time, mining activity output slipped into a decline of 0.7 per cent y-o-y in November 2018, after it rebounded 1.4 per cent in the previous month – this was as natural gas production fell back even as crude oil output picked up marginally.
Electricity output, however, picked up to 3.2 per cent y-o-y in November 2018 from 2.8 per cent in October to provide some cushion.
Likewise, manufacturing sales registered a slower growth of 7.7 per cent y-o-y from 10.2 per cent in October. Factories slowed down their pace of hiring, with employee headcount in the sector rising at two per cent y-o-y, down from 2.2 per cent the month before.
Meanwhile, salaries and wages paid to workers eased to a 10.6 per cent y-o-y growth from 11.8 per cent in the previous month.
As November’s manufacturing sales fell by a quicker pace MoM compared to the decline in worker headcount, the manufacturing sector’s productivity – as measured by sales value of manufactured products per employee – eased to 5.6 per cent y-o-y.
Public Investment Bank Bhd (PublicInvest Research) was cautiously optimistic for a piecemeal solution which could jump-start the weakening global trade situation.
“This could be a precursor for the revival in global trade, uptick in commodity prices and acceleration of asset prices which will be the catalyst that could drive the global growth trajectory higher,” it said in a separate note.
Looking ahead, Affin Hwang Investment Bank Bhd (AffinHwang Capital) believed Malaysia’s manufacturing production will likely be supported by exports of electrical and electronic (E&E) products, as according to Semiconductor Industry Association (SIA), global semiconductor sales are projected to expand at slower but a healthy pace this year.
The industry’s worldwide sales will still increase from US$477.9 billion in 2018 to US$490.3 billion projected for 2019, which would still mark the industry’s highest-ever annual sales.
“With steady manufacturing and mining output expansion in October and November period, we believe Malaysia’s real GDP growth is likely to improve slightly to 4.7 per cent estimated for 4Q18, as compared to 4.4 per cent in 3Q18.
“For 2018 as a whole, real GDP growth is likely to average around 4.8 per cent. Due to some uncertainties from the external front, especially from possible lower global trade flows as a result of global trade war tension, we are projecting Malaysia’s real GDP growth at 4.7 per cent for 2019, as compared to the official forecast of 4.9 per cent.
“This is also premised on the anticipated modest (and healthy) growth in the global economy, as reflected in IMF’s global growth forecast of 3.7 per cent this year. “Similarly, World Bank’s (WB), in the latest report, highlighted that growth in the East Asia and Pacific will moderate but stay healthy at six per cent in 2019 from 6.3 per cent in 2018.”