PETALING JAYA: Malaysia’s economy is expected to lose further momentum for the rest of the year due to tighter fiscal policy, weaker consumer spending and a tough external environment weigh on growth, according to Capital Economics.
In a research note today, it said government spending was the only area where growth picked up last quarter from 4% to 6.3%.
“Otherwise, consumption growth dropped back and net trade dragged on growth as a contraction in imports was not enough to offset the slowdown in export growth to almost zero.”
Investment, meanwhile, fell 3.5%, the first contraction since 2009 on the back of a 13.2% drop in public investment, but investment is expected to recover over the coming quarters following the revival of a large number of infrastructure projects.
Nonetheless, Capital Economics said there are a number of reasons to think the economy has further to slow.
“First, the pick-up in government spending is unlikely to last. The hole in government revenues left by the scrapping of the goods and services tax (GST) saw the budget deficit jump to 3.7% of gross domestic product (GDP) last year. With government debt one of the highest in the region, the government is now planning to tighten policy.”
“Second, growth in private spending is set to drop off quite sharply in the quarters ahead. Consumer spending has received a boost from last June’s abolition of the GST, but that will fade from this quarter onwards. High levels of household debt will also weigh on consumer spending.”
“Third, exports are likely to remain weak. The escalation in the US-China trade war will hurt Malaysian exporters, who are among the largest suppliers of intermediate goods to China. Even if tensions de-escalate, the outlook for the country’s exporters remains poor.”
ANZ Research concurred, saying that renewed trade tensions have further clouded the outlook for exports, even as external demand particularly for technology products remains subdued.
Overall, Capital Economics estimates that Malaysia’s GDP growth will moderate to just 4% in 2019 from 4.7% in 2018, lower than the central bank’s projection of 4.3% to 4.8%.
For UOB Research, it maintained the view for a growth uptick in the second half of the year amid the revival of key infrastructure projects, policy clarity, looser monetary policy, and a lower base effect.