Malaysian economic growth accelerates in Q4 2018, private consumption likely to ease to trend growth in 2019

Malaysian economic growth accelerated in the fourth quarter. On a year-on-year basis, the GDP growth accelerated to 4.7 percent from third quarter’s 4.4 percent, bringing the full-year 2018 growth to 4.7 percent. Private consumption, which is the main growth driver, rose 8.5 percent year-on-year in the December quarter, a slight slowdown from 9 percent seen in the prior quarter.

Private investment decelerated to 0.3 percent year-on-year due to a 1.5 percent fall in ‘machinery and equipment’ investment. Investment in ‘structures’ continues to be soft. Export growth rebounded to 1.3 percent year-on-year while import growth stayed low at 0.1 percent, consistent with a drawdown in inventories. As such, net exports provided a 0.8 percentage point fillip to overall growth in the fourth quarter.

Sequentially, the Malaysian economy grew 1.4 percent in the quarter, buoyed by a better performance on the external front. Private consumption softened to 0.9 percent quarter-on-quarter, reflecting some payback after the ‘tax holiday’ period.

Sector wise, manufacturing and services continued to be the largest contributors to growth in spite of easing slightly to 4.7 percent year-on-year and 6.9 percent year-on-year, respectively. In the meantime, the mining sector which was a drag on growth in the second and third quarter, rebounded in the fourth quarter, underpinning the overall growth.

At 4.7 percent for the whole of 2018, growth came in marginally lower than the government’s 4.8 percent estimate. Looking forward, private consumption is likely to ease to its trend growth rate, after a very solid 2018, consistent with a fall in consumer sentiment, noted ANZ in a research report.

Public consumption and investment are also expected to be mute as the Malaysian government continues on its fiscal consolidation path. However, inventories in 2018 subtracted 1.5 percentage points from the economic growth, so a turn in the inventory cycle will likely provide an upside.

“Oil prices, which are currently below the Budget 2019’s assumption of USD70/bbl, constitute a risk to both growth and the fiscal arithmetic. Additionally, ongoing trade tensions also pose a downside risk”, added ANZ.