KUCHING: Manufacturers in Malaysia are likely to sustain production in the domestic oriented industries, analysts observe.
They projected that Malaysia’s real gross domestic product (GDP) could expand by 4.7 or 4.8 per cent year on year (y-o-y) in the fourth quarter of 2018 (4Q18).
According to the Department of Statistics Malaysia’s latest update on the index of industrial production in Malaysia, the Industrial Production Index (IPI) increased by 4.2 per cent in October 2018 as compared with the same month of the previous year.
The growth in October 2018 was supported by the increase in all indices: manufacturing (5.4 per cent), electricity (2.1 per cent) and mining (1.4 per cent).
“Moving forward, with Malaysia’s domestic demand remaining healthy from sustained growth in both private consumption and investment, we believe that manufacturers are likely to sustain production in the domestic oriented industries, which will likely cushion for some slowdown in output from export-oriented industries, especially for electrical and electronics (E&E) products,” Affin Hwang Investment Bank Bhd (Affin Hwang Capital) said in its economic update.
“However, despite external uncertainty, we believe output of Malaysia’s export-oriented industries is unlikely to slow sharply in 2019, with the anticipated modest (and healthy) growth in the global economy, as reflected in the International Monetary Fund’s (IMF) global growth forecast of 3.7 per cent next year (the same rate of increase in 2018).”
Meanwhile, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) noted that despite the improvement seen in October, its expectation of a moderation in manufacturing performance going forward, particularly for the export-oriented sub-sectors, remains unchanged.
“This is partly based on the IHS Markit PMI Report in November, which reported two consecutive months of contraction for the manufacturing sector, as new orders dropped significantly lower.
“We foresee lower export growth in the coming months as new export orders were weak across regions and as Baltic Dry Index inched lower, pointing towards softer demand for raw materials.
“Uncertainties with regards to trade activities continue to persist, notwithstanding the temporary de-escalation of trade dispute between the US and China,” Kenanga Research said.
Affin Hwang Capital believed that with steady expansion in both exports and manufacturing output in October, if sustained, Malaysia’s real GDP growth to likely expand by 4.7 per cent y-o-y in 4Q18, higher than 4.4 per cent in 3Q18.
According to the research firm, for 2018 as a whole, real GDP growth is likely to average around 4.8 per cent (5.9 per cent in 2017).
Going forward, against the backdrop of modest but healthy growth in the global economy, we expect Malaysia’s real GDP growth to expand by 4.7 per cent in 2019.
“On domestic demand, besides the 2019 Budget measures to support consumer spending, we remain optimistic that households will remain financially sound, supported by the country’s steady household earnings and positive employment growth.
“Private investment is also expected to be supported by ongoing infrastructure projects, but there are some concerns on possible cut in capital expenditure (capex) by Petroliam Nasional Bhd (Petronas).”
On the other hand, Kenanga Research forecasted that growth in 4Q18 is expected to edge higher to 4.8 per cent from 4.4 per cent in 3Q18, mainly underpinned by strength in private consumption, amid stable labour market condition, continued wage growth and subdued inflation.
“Subsequently, for the whole year of 2018, growth is forecasted to moderate to 4.8 per cent from 5.9 per cent in 2017,” the research arm said.
On the external front, Affin Hwang Capital expected Malaysia’s growth in IPI to be supported by healthy demand from advanced economies for E&E products in 2019, where in absolute term, the global semiconductor sales are projected to increase from US$477.9 billion in 2018 to US$490.3 billion projected for 2019, which would still mark the industry’s highest-ever annual sales.
“The improvement in imports of intermediate goods in October, a leading indicator of the performance of future exports, especially in imports of electronics related products, suggest possibly expectations of healthy demand for Malaysia’s manufactured goods going forward.”
Source: Borneo Post Online