KUALA LUMPUR (Feb 11): Malaysia's gross domestic product (GDP) growth for the fourth quarter of 2019 (4Q19) is expected to slow to 4% year-on-year, with the main drag being agriculture, which has been weighed down by a 17% drop in crude palm oil (CPO) production, says CGS-CIMB Research today.
The forecast is lower than a Reuters poll of 13 economists, which predicted a growth of 4.2% in the October-December quarter on weaker private consumption and external demand. It is also lower than Bloomberg's consensus forecast of 4.1%.
In a note to clients today, CGS-CIMB Research economists Michelle Chia and Lim Yee Ping said the drop in CPO production in 4Q19 was due to lower fertiliser application a year ago, biological tree-stress and dry weather. The trend will likely extend into 1Q20.
The mining sector, meanwhile, has contracted for the second consecutive quarter, based on data from the Industrial Production Index, while manufacturing activities was muted in 4Q19, as a result of sharply lower downstream palm oil throughput, they said.
"Positives were found in the increased output of building materials, in line with the slight pick-up in construction activity. Looking ahead, we tone down our expectations of a cyclical recovery in the E&E (electrical and electronics) and machinery segments, due to China being at the epicentre of the coronavirus outbreak," the duo said.
On that note, the economists expect Malaysia to remain stuck in a low growth environment in 1Q20, as weakness in the commodities radiates into other segments of the economy in the wake of the virus outbreak.
"While there is considerable uncertainty about the economic impact from the coronavirus outbreak, we estimate that 0.5% pt could be shaved off Malaysia's GDP growth in 1Q20 due to the direct impact of restricted travel on tourism, transport and consumer spending, as well as weaker export demand for commodities and manufactured goods from China's slowing economic expansion," the duo said.
They also expect the mining sector to be further dampened by the OPEC+ consensus to reduce crude oil supply by an additional 500,000 barrels per day as well as disruptions to the Sabah-Sarawak Gas Pipeline.
Booster package seen around RM8.1b, another OPR cut expected in 1H20
To cushion the negative impact from the external headwinds on the country's economic growth, Chia and Lim estimate that the stimulus package that the Ministry of Finance is crafting could be in the ballpark of the RM8.1 billion that was spent during the 2003 SARS outbreak.
That is equivalent to 0.5% of GDP in today's terms, they said.
Some of the immediate measures could be:
- accelerated disbursement of development expenditure and the fast-tracking of key infrastructure projects
- tax deductions for companies in hard-hit sectors, for medical expenses or preventative measures by firms and households, and a temporary moratorium on the tourism tax
- boosting consumer spending by advancing Bantuan Sara Hidup payments and enlarging the e-Tunai scheme
- preserving labour market stability through employment incentives for local workers
"We expect the policy mix to be strengthened by a further dose of monetary easing, and project Bank Negara Malaysia to reduce the overnight policy rate (OPR) by a further 25bp to 2.50% in the first half of 2020 (1H20)," they added.
Bank Negara is expected to release the 4Q19 economic growth data tomorrow.