Latest figures support expectations of Malaysia slowdown

The Kuala Lumpur city skyline.
The Kuala Lumpur city skyline.
APRIL 11, 2019 - 7:32 PM

MALAYSIA'S lower-than-expected industrial production (IP) growth figures for February are supporting economists' expectations of slowing gross domestic product (GDP) growth, with possible risks of a rate cut ahead.

IP growth was 1.7 per cent in February, slowing from 3.2 per cent in January. For the two months combined -- to account for distortions related to the Chinese New Year festive season -- IP growth was 2.5 per cent year-on-year, slower than December's 3.4 per cent, as Barclays economist Brian Tan noted in an April 11 report.

Mining output was the main drag, with manufacturing output growth also slowing. However, the report also cautioned not to "overlook the palm oil surge", with crude palm oil production having surged 10 per cent year-on-year in the first quarter.

A separate DBS report expects Malaysia's palm oil exports in April and May to be boosted due to Hari Raya restocking activities, staying above 1.6 million metric tons.

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Overall, Barclays estimates GDP growth to be tracking 4.5 per cent year-on-year in the first quarter, "moderating only modestly" from 4.7 per cent in Q4 2018.

The Barclays base case is still for Bank Negara Malaysia to leave the policy rate unchanged over the next 12 months. "That said, we think the risks remain tilted toward a rate cut, which the bank may consider if GDP growth slows towards 4.3 per cent or if trade talks between the US and China fail," added Mr Tan.

ING economist for Asia Prakash Sakpal, however, sees a rate cut on the cards. ING expects a 25 basis point cut to the central bank's overnight policy rate to 3 per cent at the next meeting on May 7.

ING's growth forecasts are 4.2 per cent in the first quarter and 4.6 per cent for the full year. Slow growth in manufacturing sales, employment, and wages and salaries all point to weaker domestic demand, said Mr Sakpal.

"External uncertainties from trade tensions, weak global demand and oil prices will continue to weigh on GDP growth over the rest of the year, amid anaemic investment spending at home," he added. "However, the favourable base effect and accommodative economic policies are expected to prevent a sharp GDP slowdown should these risks intensify."