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Standard Chartered has projected Malaysia’s gross domestic product (GDP) to remain at 4.4% in the fourth quarter (Q4) of 2018. However, full-year GDP is expected to come in lower at 4.6% compared with 5.9% in 2017. Bank Negara Malaysia will release Q4 GDP data on Thursday.
“We estimate GDP growth of 4.4% y/y, similar to Q3. Private consumption may have eased from the 9% y/y growth in Q3 as the boost from the tax holiday in June-August 2018 likely faded. Nevertheless, a rebound in mining and agriculture activity may have supported growth,“ Standard Chartered said in a research note.
It added that private consumption was the main growth driver in 2018, accounting for 92% of GDP growth in the nine months (9M) of 2018 versus 64% for the same period of 2017, benefiting from the “tax-holiday” boost and strong labour market conditions.
Meanwhile, private investment eased (primarily on lower investment in residential and commercial properties in the first quarter) and public investment extended its decline in 9M 2018.
“Our GDP growth tracker suggests downside risk to our Q4 GDP growth forecast, with our tracker being reliant on more readily available externally driven activity data, such as IP, and less reflective of strong domestic consumption,” it said.
Standard Chartered forecast 4.9% GDP growth for 2019, saying that private consumption is likely to remain the main growth pillar.
“Beyond the consumer sector, we are slightly cautious on growth, especially given weak external demand. However, we see two one-off supportive factors. First, goods and services tax (GST) and income tax refunds amounting to RM37 billion (2.5% of GDP) may support spending (but these refunds have not been disbursed yet, posing downside risk to our growth forecast). Second, resumption of production capacity in the mining sector may also help.”
On monetary policy, Standard Chartered said the latest meeting of Bank Negara Malaysia’s Monetary Policy Committee in January suggested that it is more dovish on the global outlook but still comfortable on domestic growth, underpinned by private consumption and private investment.
“We maintain our call for Bank Negara Malaysia to keep rates on hold in 2019, with risks skewed towards a cut, especially if external demand worsens further and affects domestic activity.”
