KUCHING: Analysts lower their growth forecasts for Malaysia's gross domestic product (GDP) after a slower than expected slowdown in the second quarter of 2018 (2Q18) to 4.5 percent yoy (y-o-y) of 5.4 in 1Q18.
Kenanga Investment Bank Bhd (Kenanga Research) saw that the lower GDP in 2Q18 was lower than both the consensus and the residential estimate of 5.2 and 5.3 percent respectively.
"Domestic demand was the main driving force for the growth of 2Q18. Domestic demand grew by 5.6 percent year-on-year and contributed 5.2 percentage points (ppt) to GDP growth compared to 3.8ppts in 1Q18, "said it yesterday in a note.
"This is mainly due to the strong growth of private investment and consumption, with private spending up 7.5 percent overall, contributing 5.5 ppts to GDP, partly due to the abolition of the Good and Services Tax (GST). ), which started in June.
"In the meantime, government spending fell 1.4% yoy from year to year, especially under the influence of the unprecedented outcome of the 14th general election (GE14) in May, which brought about a major change in government." The slowdown in the global tech cycle and the continuing tension of global trade is still weighing on exports, so export growth slowed to two percent from 3.7 in 1Q18. "
In the second half of the year, analysts at Affin Hwang Investment Bank Bhd (AffinHwang Capital) expect growth in private consumption to continue to support GDP growth, especially in 3Q18, driven by purchases made by consumers and businesses , in particular prior to the introduction of the new sales and service tax (SST), which is expected to be implemented in September 2018.
"While we are worried about slowing consumer spending, we think that households, although they have pushed their spending into 2Q18 and 3Q18, are unlikely to spend much on spending," it said in a separate note.
"This was also the case for the GST implementation in April 2015, where consumers did not sharply cut their purchases in 2Q15, as previously feared, partly as a result of the stable labor market conditions in the country and the steady wage growth.
"Gradually, despite healthy domestic demand, the real GDP growth of the country can be affected by developments in the global environment, while global risks remain substantial and are likely to have a downside."
AffinHwang Capital expected both the export and production of Malaysia to slow down growth in 2H18, given the likely slower exports to China and EU countries, as well as concerns about the upcoming global trade strains.
The tension in the trade war, if escalated, would probably have a negative impact on trade and business sentiment in export-related industries, possibly due to higher input costs as a result of the imposed tariffs, especially on imports from China and the US.
"As a result of lower than expected real GDP growth in 2Q18, we are revising our GDP growth forecast lower by 2018 from 5.3 previously estimated at five percent at present, in line with the official projection of five percent," it added.
"The flat growth expected for 2H18 by about 5 percent is also partly due to the higher base effect in the corresponding period last year, where output growth is likely to decline."
While domestic demand remained healthy, supported by private consumption, AffinHwang Capital said that the strength and sustainability of real GDP growth in Malaysia in the coming quarters was important for developments in the global environment, where the risks for the global outlook is downward.
"As such, we also lower our GDP growth forecast for 2019 to five percent, from previously published 5.3."
Similarly, Kenanga Research predicted that the pace of Malaysia would slow further in 2H18.
"So far, the post-GE14 period has had a mix impact on economic growth, with growth in private private consumption following the government's decision to scrap the GST has been positive for growth so far.
"But lower budget expenditures and weak external demand continue to have an opposite effect, resulting in GDP growth from 1H18 to an average of 4.9% yoy.
"Given the expectation that the growth rate will slow further in 2H18 due to the impact of weaker global trade due to the impact of the trade war and the further slowdown in domestic demand, we predict economic growth to 4.7 percent in the 2H18 .
"That is why we are reviewing our GDP growth forecast from 4.8 to 4.8 percent for 2018. We are also revising our GDP forecast for 2019 to 4.7 percent from five, expecting a further slowdown in the world economy as a result of the deterioration of world trade and a weaker US economy. "