business conditions


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Malaysia’s economy likely to bottom out in Q2 2019

PETALING JAYA: AmBank Research believes the Malaysian economy

which anticipates further weakening pressure on economic growth in the first quarter of the year (Q1 2019), believes that the economy should register slight improvement in the Q2 2019 and pick up thereafter.

This is partly attributable to the low base besides support coming from domestic activities, foreign direct investments and complemented by exports as the electronics cycle slows down, added with softer commodity prices, it said in a note.

The manufacturing sector, based on the Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI), observed a deep decline in business conditions in December 2018.

The headline PMI fell to a six-month low to 46.8 in December 2018 from 48.2 in November 2018. The demarcation between expansion and contraction is 50.

The data points to the sharpest deterioration in the health of the goods-producing sector since May. It also extended the current period of decline to two months. The drag largely came from severe reductions in production and new businesses.

AmBank Research said it noticed that forward-looking gauges also indicate downside risks with overall demand to be weak, thus causing companies to become less willing to hold stocks.

On that note, the research house said it foresees growth prospects to remain weak, anticipating Q4 2018 gross domestic product (GDP) should ease to around 4% to bring the full-year growth to 4.6%.

“With our base case GDP outlook for 2019 at 4.5% with the upside at 4.8%, we foresee further weakening pressure on growth in Q1 2019,” it added.

Meanwhile, it said the strong foreign approved investment amounting to RM48.8 billion as of Q3 2018, which is an all-time high, is expected to support growth in 2019.

The growth drivers are expected to come from petroleum refineries with RM17.2 billion investment being approved, followed by electrical and electronics (RM10.2 billion), basic metal products (RM5.7 billion), chemical and chemical products (RM4.6 billion) and rubber products (RM3.5 billion).

Additionally, it said agriculture, mining, and plantation and commodities saw a notable increase in approved investment with 54 projects as of Q3 2018, compared with 48 projects in 2017.

Furthermore, it said investment in the services sector will continue to boost growth largely coming from local players with RM60.4 billion approved investments compared with RM96 billion in 2017, while foreign investment remained muted at RM9.5 billion as of Q3 2018 from RM28.5 billion in 2017.

Bank Negara Malaysia is due to announce Q4 GDP on February 14.

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