Faltering growth in Malaysia warrants accommodative fiscal policy: ANZ

KUALA LUMPUR – Malaysia’s economy has dipped. For the June quarter, 0.3% q/q GDP growth was the lowest since Q1 2013. Exports contracted 1.6% over the quarter, and, combined with firm import demand, net exports shaved 1.6% off quarterly growth. Manufacturing growth eased further to 4.9% y/y from 5.3% y/y in Q1, a slowdown consistent with the milder increase in exports.

And both agricultural and mining output, which jointly contributed 15% to GDP, declined 2.5% y/y and 2.2% y/y, respectively to constitute a key drag on the economy. Services continued to support growth at 6.5% y/y.”

Private consumption, which expanded 8% y/y for the June quarter against 6.9% y/y previously, was the mainstay of growth and received a fillip with the withdrawal of the GST on June 1.

Higher investment in “machinery & equipment” helped buoy overall investment activity at 2.2% y/y in Q2 (Q1: 0.1%). However, tepid construction activity resulted in investment in structures growing a meagre 2.1%y/y.

Commenting on the numbers, ANZ Research says that, in the run-up to the May elections, firms seem to have held back.

“Post-elections, as the new Government placed key infrastructure projects under review, investments linked to such projects seem to have been delayed further,” ANZ says.

“After the large draw-down in inventories in Q1, restocking demand is yet to pick up.

ANZ says that, going forward, private spending is expected to remain strong at least through Q3 2018 (prior to the replacement of the GST with a Sales and Service Tax (SST).

“We also expect a fillip from restocking in Q3, though a recovery in private investments will hinge on clarity emerging on the infrastructure projects under review.

“Public consumption growth is unlikely to sustain through 2018, given the new Government’s stated intention to reduce non-essential operating expenditure and review large-scale projects.”

ANZ says trade prospects constitute a key risk. “There has been a loss in momentum in exports over recent months, as the strains from global trade tensions became apparent. There is clear downside risk to our full-year GDP growth forecast of 5.4%.”  www.live.anz.com (ATI).