Malaysia 2017 GDP Spiked to 3-Year High March 2, 2018
On full year basis, the country’s economic growth rate spiked to three-year high of 5.9% growth
Author : Jerry Lee Chee Yeong

Malaysia 2017 GDP Spiked to 3-Year High

Despite the forecasted growth rate for 4Q2017 being lowered down by several economists or analysts due to the unfavorable base effect, Malaysia economic activity posted unexpected growth rate of 5.9% y-o-y in 4Q2017 (see figure 1), outperforming the consensus estimate of 5.8% expansion. On full year basis, the country’s economic growth rate spiked to three-year high of 5.9% growth (see figure 2). The local economic activity was mainly driven by the private sector with support coming from the external sector.

Chart 1: Malaysia GDP vs Consensus

Chart 2: Malaysia’s Annual GDP

Robust Private Consumption

The domestic private consumption was the main driver for the local economic activity during the last quarter of 2017, growing at 7.0% y-o-y. From figure 3, one can notice that the domestic private consumption has finally picked up momentum after the implementation of GST in mid-2015 and the subsequent removal of subsidy on cooking oil and petrol price. The removals of subsidy created significant impact on the local private spending, bringing the private consumption growth rate to as low as 4.1% in 3Q2015.

Chart 3: Malaysia's Private Consumption

However, it turned around after moving into 2017, where we saw the growth of local private consumption back to the pre-GST level (see figure 3). In fact, the growth in the domestic private spending was in line with the consumer sentiment index (see figure 4), which is a leading indicator that measures the local households’ confidence on the economic outlook.

Chart 4: MIER Consumer Sentiment

Moving forward, we believe that the local private consumption is likely to remain as the key driver for the local economy and with the expectation that the local inflation is likely to moderate this year (see figure 5), it would help to reduce the burden of rising living cost and spur the domestic spending.

Chart 5: Malaysia's Inflation

Exports Moderated But Remains Healthy

On the external front, Malaysia exports’ growth slowed to 4.7% y-o-y in December 2017 (see figure 6) as the unfavorable base effect kicked in. Despite the slowdown in the last month of 2017, Malaysia’s full year exports jumped 19.4% y-o-y, which is the highest growth rate in 13 years (see figure 7).

Chart 6: Malaysia's Exports Growth

Chart 7: Malaysia Annual Exports Growth

Moving forward, we believe that the synchronized global economic growth which is likely to drive foreign demand on the domestic products as well as the gradual recovery in commodities prices would be the key drivers for Malaysia’s external trade activities.

However, although we do expect that the growth of exports to moderate in 2018 due to the high base effect, we believe it would only have a minimal impact on the local economic activity as the pick-up in local consumption is likely to offset the impact of lower exports growth.

Supply Side: Main Drivers Remain Strong

By looking at the GDP from the supply side, both the Services and Manufacturing sector which account for more than 77% of Malaysia total GDP grew at a respectable pace of 6.2% and 5.4% respectively.

The strong momentum from the Services sector was contributed by the wholesales & retail trade and information & communication sub-sectors which grew by 6.9% and 8.1% over the last quarter of 2017. The robust growth in the services sector was a reflection of the upbeat momentum in the domestic economic activity. Moving forward, the local services sector is likely to maintain its resilient growth underpinned by the still strong domestic demand.

Similarly, the local manufacturing sector grew healthily in 2017 with the full year growth rate accelerating to 6.0%. Despite the latest Purchasing Managers’ Index falling below the 50.0 threshold in February, we believe that the prospect of the manufacturing sector will remain supported by the upbeat global economic growth and the improving domestic condition (optimism in consumer and business confidence).

Chart 8: MIER Business Condition Index


All in all, we believe the fundamental of Malaysia’s economy will still remain intact moving in 2018 and this would be one of the reasons that boosts the inflow of foreign fund into the local equity market (YTD: RM2.1 billion as of 23rd February 2018)). Apart from the robust Macroeconomic picture, we will update investors with the Malaysia corporates’ earnings and the valuation of the equity market in the next writeup for aiding our investors to make informed decision.

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