KUALA LUMPUR (Dec 13): CGS-CIMB Research said Malaysia's gross domestic product (GDP) growth looks likely to slow further, from 4.4% year-on-year (y-o-y) in the third quarter of 2019 (3Q19) (versus +4.9% y-o-y in 2Q19).

In an Economics Update today, the research house said it expects growth prospects to remain subdued for Malaysia, reiterating its forecast of 4.5% in 2019F and 4.4% in 2020F.

It also said the loss of economic momentum warrants further monetary policy easing and anticipates Bank Negara Malaysia to deliver two 25-basis-point cuts in 2020F.

CGS-CIMB said at only +0.3% y-o-y, Malaysia's industrial production index in October expanded at its weakest pace since February 2013 (+1.7% y-o-y in September), below all forecasts, including the research house's.

"Although October is generally the month in which industrial production peaks, and the 4% gain in industrial activity a year ago topped market expectations, the 1% month-on-month (m-o-m) decline on a seasonally-adjusted basis in October (-0.3% m-o-m in September) suggests that it is not just the base effect that contributed to the subdued annual growth," it said.

CGS-CIMB also said mining output remained the weak spot (-5.8% y-o-y in October versus -1.6% y-o-y in September). While the contraction in natural gas (-6.3% y-o-y in October versus +1.1% y-o-y in September) was due to base effects, crude petroleum output (-5.1% y-o-y in October versus -4.7% y-o-y in September) has not fully recovered following the completion of maintenance works at the Gumusut-Kakap oilfield.

Furthermore, manufacturing output growth also continued losing steam (+2.2% y-o-y in October versus +2.5% y-o-y in September), at odds with the Markit Manufacturing Purchasing Managers' Index, which rose from 47.6 in 3Q19 to 49.4 in October-November. Electricity output rose 0.5% y-o-y in October (+4.1% y-o-y in September).

The research house said the contraction in crude palm oil output deepened to 8.6% y-o-y in October (-0.6% y-o-y in September) and is expected to remain a drag on downstream production in the rest of 4Q19, due to less fertilisers applied by farmers in 2018 as well as the dry weather.

"The ramp-up in motor vehicle production to replace depleted stocks after the zero-GST period lifted the base effect, resulting in slower growth in October (+9.4% y-o-y versus +33.6% y-o-y in September)," it added.

Nonetheless, it said there was a few bright spots that posted stronger gains, such as electrical and electronic (+2.4% y-o-y versus +0.8% y-o-y in September), furniture (+8.5% y-o-y versus +7.0% y-o-y in September), wearing apparel (+8.0% y-o-y versus +4.6% y-o-y in September), basic metals (+4.4% y-o-y versus +3.3% y-o-y in September), and pharmaceutical products (+1.6% y-o-y versus +0.8% y-o-y in September).

Meanwhile, there was also some slower growth extended to other key segments, such as refined petroleum products (+1.5% y-o-y versus +2.4% y-o-y in September), chemicals (+0.3% y-o-y versus +1.7% y-o-y in September), rubber and plastics products (+1.1% y-o-y versus +2.5% y-o-y in September), non-metallic mineral products (+3.2% y-o-y versus +4.1% y-o-y in September), and wood products (+4.1% y-o-y versus +6.5% y-o-y in September).