Malaysia: Economic growth accelerates in the fourth quarter of 2018
The Malaysian economy accelerated in the final quarter of 2018, posting growth of 4.7% over the same quarter a year earlier (Q3: +4.4% year-on-year). The result, which came in above market expectations, was driven by a stronger performance from the external sector and robust private consumption. Compared to the previous quarter, the economy expanded 1.4% in the fourth quarter, which is down slightly from the 1.6% increase recorded in the third quarter.
Annual growth in the economy was driven domestically by stronger growth in private consumption, which grew 8.5% in the fourth quarter and was only slightly down from the 9.0% increase logged in the previous quarter. Prakash Sakpal, Asia economist at ING, commented that this was likely due to “populist policies, steady and strong wage growth as well as low inflation”. Looking at the remaining components of domestic demand, growth in both fixed investment and government consumption eased. Fixed investment expenditure grew a meager 0.3% in the fourth quarter (Q3: +3.2% yoy) and suffered from a loss of momentum in the structure subsector and a contraction in machinery and equipment investment. Moreover, the small growth figure was solely due to private sector activity as public sector investment dropped markedly. Government expenditure grew 4.0% in the fourth quarter (Q3: +5.2% yoy) on the back of spending on supplies and services. Sakpal added that “ongoing fiscal constraints and suspensions of some big-ticket investment projects weighed down government consumption and investment spending.”
On the external front, net exports contributed 0.8 percentage points to growth in gross domestic product, swinging from a 0.7 percentage point deduction in the third quarter. This was solely due to a rebound in exports of goods and services growth (Q4: +1.3% yoy; Q3: -0.8% yoy), on the coat tails of strong foreign demand for electrical and electronic products, liquefied natural gas and crude petroleum. Shipments of palm oil and palm-oil based products contracted significantly, however. Meanwhile, growth in inbound shipments of goods and services doubled from 0.1% in the third quarter to 0.2% in the fourth quarter. This was due to an increase in intermediate goods and imports of consumption goods imports as capital goods imports fell.
Looking ahead, the pace of economic growth is expected to moderate this year. This is partly on the back of the government’s tighter fiscal stance, which should weigh on domestic demand. Global trade tensions also cloud the outlook for the external sector.