Malaysia: Economic growth ebbs in Q1 2019
The economy softened in the first quarter of the year, growing 4.5% in annual terms over the same quarter a year earlier. This was down from the fourth quarter’s 4.7% year-on-year acceleration although was above market expectations of a 4.3% expansion nonetheless. Compared to the previous quarter, the economy expanded 1.1% in Q1, down slightly from the 1.3% increase recorded in Q4.
A weaker external sector, which likely had a spillover effect on domestic demand, partly led the annual slowdown in the first quarter. Net exports contributed 0.9 percentage points to GDP growth in Q1, down a notch from the 1.0 percentage point contribution in Q4. Imports of goods and services fell 1.4% (Q4: +1.8% year-on-year), while exports expanded a meagre 0.1%, down from the fourth quarter’s 3.1% expansion.
On the domestic side, gross fixed capital formation fell significantly (Q1: -3.5% yoy; Q4: -0.6% yoy) due to a sharp contraction in public investment. Although growth in private consumption moderated slightly in Q1, it still expanded a solid 7.6% over the same quarter last year (Q4: +8.4% yoy), supported by robust wage gains and muted price pressures. In contrast, public spending picked up, growing 6.3% (Q4: +4.0% yoy).
Looking ahead, economic growth is expected to accelerate in the coming quarters although overall growth in 2019 should ease slightly relative to 2018. This is partly due to softer private consumption and public consumption as the government looks to cut the fiscal deficit, which will likely drag on domestic demand. Moreover, global trade tensions also pose a risk to the outlook for the external sector.
Providing a medium-term outlook on growth, Euben Paracuelles, a research analyst at Nomura, noted:
“We maintain our full-year 2019 GDP growth forecast at 4.0%, which would represent a slowdown from 4.7% in 2018. We expect further export weakness in coming quarters due to cooling foreign demand, the deepening tech downcycle and rising trade tensions […] Given Malaysia’s exposure to trade, a continued weakening in the export sector would likely have large negative spill-over effects on domestic demand via its impact on capex and the labour market, as is already evident in the sharp slowdown in the total investment spending since last year.”
Holding a more optimistic view on Malaysia’s growth outlook, Prakash Sakpal, economist at ING, commented:
“The above-expected first-quarter GDP on its own lifts our full-year growth forecast from 4.6% to 4.7%, putting it close to the top end of the BNM’s 4.3-4.8% forecast for this year. We don’t think the government’s expectations of 4.9% growth this year will be unachievable given the accommodative macro policies.”