Domestic exports in particular registered tepid growth of 0.4 per cent y-o-y, the lowest in a year dragged by sales of crude and petroleum products. — Bernama photo
KUCHING: Analysts expect gross domestic product (GDP) growth to moderate following figures of distributive sales for the third quarter of 2019 (3Q19) expanding at a pace of 5.7 per cent year on year (y-o-y), the lowest rate seen in three years.
The moderation was contributed by slowdown in all three components: wholesale, retail and motor vehicle sales amid high base effect from tax holiday period last year, highlighted MIDF Amanah Investment Bank Bhd (MIDF Research).
“The momentum in distributive trade reflects the performance of private consumption and services component of GDP which are suggesting a slowdown in growth,” it said yesterday.
“Nevertheless, low inflationary pressure mainly due to subsidised retail fuel prices for RON95 and diesel and stable labour market as reflected by full-employment condition are supportive of domestic demand.
“In addition, 3Q19 is the first full quarter after the 25bps OPR cut in May 2019, providing more support to the estimate.”
MIDF Research also saw warning signs in Malaysia’s external trade performance which deteriorated in 3Q19 where both exports and imports contracted by 1.9 per cent and 5.4 per cent y-o-y respectively.
Domestic exports in particular registered tepid growth of 0.4 per cent y-o-y, the lowest in a year dragged by sales of crude and petroleum products.
“However, outbound shipment of crude and processed palm oil and LNG which suffered supply disruption in 3Q18 expanded solidly by 6.8 per cent and 6.1 per cent y-o-y respectively in 3Q19.
“Meanwhile, re-exports which constitute circa 17 per cent of total exports continued shrinking but at a softer pace. Nevertheless, as imports fell harder than exports, trade surplus widened to RM33.5 billion, providing support to the GDP growth performance in 3Q19.”
Another indicator of a slowdown was seen in the Industrial Production Index which expanded by 1.6 per cent y-o-y in 3Q19, its lowest in 6 and a half years. The weakening IPI was mainly due to trade wars which affect global trade activities and manufacturing production in particular, which has the highest weightage in the overall IPI index.
All these led MIDF Research to forecast GDP growth for 3Q19 at 4.7 per cent. Malaysia’s economic activities are predicted to continue expanding amid resilient domestic spending and challenging external trade performances.
“Moving forward, we view continuous expansionary momentum particularly with solid domestic demand, lower OPR effects, stable job market, low inflationary pressure and gradual pick-up of commodity prices this year. On top of that, the easing monetary policy by major countries may act as a factor to push the goods demand.
“Nevertheless, trade spat between the US and China remains as downside risk to export-oriented economies including Malaysia. The uncertainties over the US-China trade agreement persist as the duo have not signed anything yet.
“For 3Q19 in particular, we opine the economy to expand at moderating pace of 4.7 per cent y-o-y compared to 4.9 per cent y-o-y in the preceding quarter. Moderation in private consumption in particular as a result of higher base effect last year following tax holiday would contribute to the slower pace.
“Nevertheless, robust net export and increasing government spending would partially cushion the impact.”