This article first appeared in The Edge Financial Daily on November 13, 2019

KUALA LUMPUR: Malaysia is expected to see slower economic growth in the third quarter of 2019 (3Q19) as key sectors expand at a slower pace, while construction and mining register a decline, said economists.

Bank Negara Malaysia (BNM) is scheduled to announce the 3Q19 gross domestic product (GDP) numbers on Friday.

United Overseas Bank (UOB) senior economist Julia Goh said the expected slower GDP growth is in tandem with the muted trends in the region and synchronised global slowdown.

“We expect real GDP growth to come in at 4.1% y-o-y (year-on-year) in 3Q19 (2Q19: 4.9%; 1Q19: 4.5%) given weaker readings of key data particularly for September month which had fewer working days. This is lower than a Bloomberg consensus poll which expects 4.4% y-o-y,” she wrote in a note yesterday. Goh said the slowdown in 3Q19 is likely to be more acute given steeper declines in mining output owing to supply disruptions in the crude oil segment from maintenance shutdowns, while the construction sector is expected to edge into the red as construction activities decline further.

The manufacturing sector should moderate given slower export-oriented production, while the services sector is expected to remain resilient on robust spending given several public holidays in September.

“However, indicators of retail and wholesale trade, as well as vehicle sales, signal a slowdown in 3Q19. Transport and storage, information and communication are expected to ease albeit still recording high growth rates, while business services and real estate are expected to remain steady,” Goh said. “The agriculture sector is expected to record stable expansion based on the latest commodity data showing palm oil and natural rubber production increasing 8.6% y-o-y and 7.2% y-o-y respectively in 3Q19,” she added.

For the full year, Goh said despite preliminary projections suggesting that growth will trough in 3Q19, UOB is inclined to revise its current full-year growth estimate of 4.6% y-o-y as any pickup in 4Q19 is unlikely to punch above 4.8%.

“It is worth noting that supply–side disruptions remain a drag on growth whereby production of crude petroleum oils and condensates fell 12.8% y-o-y in 3Q19 (2Q19: -2.6%). A turnaround of this segment could alleviate the drag on growth,” she noted.

Echoing Goh’s sentiment, CGS-CIMB Research expects Malaysia’s 3Q GDP growth to weaken to 4.6% y-o-y, after taking into account the country’s mining drag and waning industrial momentum.

CGS-CIMB economists Michelle Chia and Lim Yee Ping wrote in a note yesterday that the 1.7% y-o-y rise in Malaysia’s Industrial Production Index (IPI) in September was in line with the consensus forecast but below CGS-CIMB’s expectation of a 2.5% gain.

“Cumulatively, the IPI rose 1.6% y-o-y in 3Q19, the most subdued pace since 1Q13. More worryingly, the manufacturing sector expanded just 3.3% y-o-y in 3Q19, registering the weakest growth since 2013. The mining drag and waning industrial momentum will weigh on the economy in 3Q19. We project Malaysia’s GDP growth to moderate from 4.9% y-o-y in 2Q19 to 4.6% y-o-y in 3Q19.

“On a seasonally-adjusted basis, the IPI fell 0.3% month-on-month (m-o-m) in September (+0.8% m-o-m in August),” the economists said.