Domestic Demand Lifts Malaysia Growth

In the wake of weaker business conditions and consumer sentiment, coupled with a decline in manufacturing data, there are concerns that Malaysia’s recent strong economic growth may not be sustainable.

“Domestic demand has been lifting growth. Despite falling business conditions and consumer sentiment in the third quarter, Malaysians continue to spend and invest, The Star online reported.

“This lead to growth in private consumption and investment by 7.2% and 7.9% respectively, suggesting that disruption in sentiment may not necessarily translate into lower spending,” said Lee Heng Guie, executive director, Socio Economic Research Center.

Malaysia’s business conditions index fell to 103.1 points in the third quarter, from 114.1 points in the previous quarter. Its consumer sentiment index slid by 3.6% percentage points, quarter-on-quarter, to 77.1 points.

“There could be over-expectation of strong growth. The year-on-year growth of 6.2% for the third quarter was a good number but consensus could be just for growth of around 5% in the near term, which is also good for the region.

“With the global economy continuing to improve, and strength in commodity prices and thus, fiscal position, Malaysia’s growth may sustain at around 5%. This is so long as there are no major negative events arising from the movement of the ringgit and inflationary pressure,” said Danny Wong, CEO, Areca Capital.

“Malaysian economic growth has been an upside surprise for 2017, boosted by strong domestic demand and higher exports on the back of strong external demand. The recovery of commodity prices from the slump in 2016 had also contributed to strong exports.

“Growth is likely to moderate in the near term due to the waning of the low base effect. It will be supported by public and private investment while government handouts and bonuses to civil servants will continue to support growth in private consumption,” said Thomas Yong, Fortress Capital.

Other catalysts include special financial payments to retirees and personal tax cuts that help to ease the pressure on the cost of living. “Private investment may face headwinds from uncertainties ahead of the elections which must be held by June 2018,” said Lee.

“In spite of strong growth data, PMI has been weak. Growth has not been even across all sectors, with some major industries seeing weak growth “ Growth in household income has typically lagged that in gross domestic product, as most people are employed in the services sector where productivity growth is slower than in manufacturing.”