Malaysia: Economy continues to grow at a solid pace in Q4
Economic momentum moderated but remained resilient in the fourth quarter, with GDP growth figures beating market expectations on the back of solid private consumption growth, a pick-up in government spending and a more supportive external sector. GDP expanded 5.9% year-on-year in Q4, slightly below the 6.2% increase—an over three-year high—recorded in Q3 but above market projections of a sharper deceleration to 5.7%. In quarterly seasonally-adjusted terms, GDP growth moderated to 1.0% in the fourth quarter from 1.8% in the third quarter.
The domestic sector contributed strongly to growth in the fourth quarter. Household spending rose 7.0% in year-on-year terms, slightly below the 7.2% increase recorded in the previous quarter. Private consumption was supported by solid employment and wage growth through the quarter. Fixed investment growth moderated from 6.7% in Q3 to 4.3% in Q4, weighed down by a decline in public investment but partially offset by an encouraging increase in private sector investment growth to 9.2% from 7.9%. Government consumption growth accelerated markedly to 6.9% in Q4 from 3.9% in Q3, while inventories were a small drag in Q4.
The external sector added a net contribution to growth of 0.5 percentage points in the fourth quarter, which was above the 0.2 percentage-point contribution recorded in the previous quarter. Increased support from the external economy reflected a sharper deceleration in import growth compared to export growth. Export growth decelerated to 7.1% in year-on-year terms in Q4 from a 11.8% expansion in Q3, while import growth moderated to 7.4% in Q4 from a 13.4% increase in Q3.
The Q4 report rounded off a year of strong growth, with GDP increasing 5.9% in 2017 from a 4.2% rise in 2016. Looking to this year, growth is expected to remain buoyant but decelerate slightly on the back of higher household debt servicing costs amid rising borrowing costs, weaker export growth and the risk of fiscal tightening following the upcoming elections, which must be held by August. That said, improved labor conditions, strong infrastructure spending and a pre-election boost should ensure growth remains healthy in 2018.