Malaysia: Economic growth eases on a weakening external sector
Growth in the Malaysian economy eased slightly to 4.4% in the third quarter over the same period a year ago, which is fractionally down from the 4.5% year-on-year expansion in the second quarter and marks a two-year low. The result was also below market expectations of 4.6% growth. In quarter-on-quarter terms, the economy accelerated significantly and grew 1.6% (Q2: +0.3% quarter-on-quarter).
Annual growth in the economy came on the back of strengthening domestic demand, with household consumption, government expenditure and fixed investment growing at a quicker rate than in the previous quarter. Private consumption was the star performer, expanding 9.0% year-on-year (Q2: +8.0% yoy) and underpinned by the zero-rating of the goods and services tax on 1 June ahead of the reinstatement of a less broad-based sales and services tax on 1 September. Annual growth in retail sales came in at a multi-year high in August, while long holidays also positively influenced the strong growth in private consumption. Furthermore, fixed investment increased 3.2% in the third quarter over the same period a year ago (Q2: +2.2% yoy), reflecting private sector investment, particularly in machinery and equipment. Government expenditure, meanwhile, expanded significantly in the third quarter (Q3: +5.2% yoy; Q2: +2.2% yoy).
On the external front, merchandise exports accelerated at a double-digit pace in the quarter in USD value terms on the back of resilient foreign demand for electrical and electronic products, crude petroleum, and refined petroleum. However, the pace of expansion in exports slowed markedly compared to the previous quarter (Q3: +10.1% yoy; Q2: +18.4% yoy), chiefly owing to strong contractions in the exports of palm oil and palm oil-based products and liquefied natural gas. Merchandise import growth also moderated strongly in USD value terms compared to the prior period, easing from 18.7% yoy in the second quarter to 11.3% yoy in the third quarter. This reflected a drop in intermediate goods imports amid robust growth in consumption goods and capital goods. While the merchandise trade balance posted a surplus, the external sector including trade in services dragged on headline growth.
Looking ahead, the pace of economic expansion is expected to moderate next year and thereafter. This partly reflects global trade tensions clouding the external sector’s outlook. On the other hand, private consumption should be buttressed by a smaller tax burden due to the zero-rating of the goods and services tax in favor of a sales and services tax.