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Malaysia GDP Q3 2019

Malaysia: Economic growth slows to over three-year low in Q3

The economy weakened in the third quarter, dragged down by falling fixed investment and exports. Economic growth expanded 4.4% year-on-year in the third quarter, matching market expectations but down from the robust 4.9% expansion recorded in the second quarter and marking the worst economic performance since Q2 2016. In quarter-on-quarter seasonally-adjusted terms, GDP growth decelerated to 0.9% in Q3 from 1.0% in Q2.

The slowdown in Q3 came on the back of the sharpest contraction in fixed investment on record (Q3: -3.7% year-on-year; Q2: -0.6% yoy), amid ongoing trade tensions and a contraction in construction sector activity. The decline came on the back of falling investment in infrastructure, machinery and equipment.  Moreover, private consumption growth moderated to 7.0% in Q3 from 7.8% in Q2, remaining the main driver of growth but slowing likely due to a high base effect from tax changes last year and lower wages in the manufacturing sector. In contrast, public spending accelerated in Q3 (Q3: +1.0% yoy; Q2: +0.3% yoy), but remained subdued as the government continues its fiscal consolidation efforts.

On the external side, exports of goods and services declined 1.4% in Q3 (Q2: +0.1% yoy). This was largely due to a drop in the exports of goods as demand for electronics remains muted due to the U.S. China trade war and the global tech downcycle, while demand for commodities has also waned as a consequence. Imports of goods and services fell 3.3% in Q3, deteriorating from the 2.1% contraction in Q2. Consequently, the contribution from net trade contributed 1.0 percentage points to growth in Q3, which was down from the 1.4 percentage point contribution in Q2.

Going forward, economic growth is forecast to cool further in 2020 as prolonged weakness in export-oriented sectors spills over into slower hiring activity and softer consumer spending. That said, a rebound in fixed investment and the government’s slightly more accommodative fiscal stance should help buffer domestic demand. Global trade tensions and the slowdown in China pose downside risks to the outlook for the external sector.

Commenting on their outlook for the Malaysian economy, economists at Standard Chartered, noted:

“Private consumption may continue to be the main growth support, with overall labour-market conditions remaining healthy […] a potential bottoming out (but no strong recovery) of global growth may improve onshore growth sentiment. We estimate that the Malaysian economy may run close to zero potential growth in 2020. However, downside risks remain and could turn the output gap negative.”

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