Malaysia: Economy accelerates in Q4 supported by private consumption
February 17, 2017
While 2016 has been an exceptionally difficult year for the economy due to low commodity prices and a subdued external demand, Q4’s GDP reading provided a pleasant surprise for Malaysia. In the fourth quarter of 2016, GDP expanded 4.5% over the same period of the previous year. The figure marked an acceleration compared to the 4.3% increase in Q3 and narrowly beat market expectations of a 4.4% rise. According to the Department of Statistics Malaysia, resilient private consumption and fixed investment helped offset a contraction in government consumption. The Q4 figure confirms the role of private consumption role as the growth engine for the economy after government spending fizzled following the collapse of oil prices. A quarter-on-quarter comparison showed that seasonally-adjusted GDP growth in Q4 mirrored Q3’s 1.4% reading.
Domestic demand drove Q4’s expansion, increasing 4.4% (Q3: +4.1% year-on-year). Private consumption growth largely kept its healthy pace this quarter (Q4: +6.3% yoy, Q3:+6.4% yoy), supported by sustained wage and employment growth. Growth in consumption largely reflected higher spending on food and beverages, housing and utilities. Fixed investment recorded a slight acceleration (Q4: +2.4% yoy, Q3:+2.0% yoy), but it still remains muted compared to previous years. Inventories also contributed positively to growth in the fourth quarter. Conversely, government consumption was the only drag on growth in Q4, contracting 4.2% for the first time since Q2 2014. The fiscal drag resulted from the government’s commitment to meet its full-year deficit target of 3.1% for 2016.
In the external sector, exports of goods and services grew 1.3% in Q4 thanks to a weaker ringgit and higher oil prices towards the end of the year. The figure contrasted the 1.3% contraction recorded in Q3. Imports also improved, expanding 0.7% in Q4 and rebounding from the 2.3% drop in Q3. The external sector’s net contribution to overall growth in Q4 was stable at Q3’s 0.5 percentage points. While a continued improvement in exports would provide the economy with an additional push, rising protectionism in the U.S. could significantly hurt Malaysia’s export-dependent economy.
Author: Luis Lopez Vivas, Economist