This article first appeared in Corporate, The Edge Malaysia Weekly, on July 11 - 17, 2016.

Malaysia's GDP keeps sliding

WHAT’S going on: Malaysia’s gross domestic product growth has been slowing for four consecutive quarters to 4.2% year on year in 1Q2016, in line with most projections. Bank Negara Malaysia expects this year’s GDP growth to be between 4% and 4.5%. More economists recently started trimming their full-year forecast growth to below 4% after Brexit.

What it means: Malaysia’s economic growth over the course of the year remains challenging because of weak domestic consumption and external headwinds, including a slowdown in China’s economy, lower crude oil prices and now, fears of global contagion from Britain’s impending exit from the European Union. GDP data for 2Q2016 is due to be released next month and expected to be in the low 4% region. 

Better confidence but not best

What’s going on: The Malaysian Institute of Economic Research’s (MIER) Consumer Sentiment Index shows better consumer sentiment in 1Q2016 at 72.9 points, compared with 63.8 points in the preceding quarter and 72.6 points in the previous corresponding period. MIER’s Business Confidence Index similarly shows improved sentiment at 92.9 points, compared with 87.1 points in the preceding quarter. However, the index is still a distance from 1Q2015’s 101 points.

What it means: Business and consumer sentiment has been improving since 4Q2015, but things are still below the threshold of confidence. MIER says consumer apprehension about rising prices has been moderating but there remains uncertainty over job outlook and expected incomes. As for business confidence, MIER believes that the near-term outlook is positive and that production and orders stand to gain traction.

Property market in a funk

What’s going on: Latest data on property transactions paints a gloomy picture. In 1Q2016, transaction volume and value fell 14.4% and 17.9% y-o-y respectively. The contraction has been going on since 4Q2014.

What it means: This is the biggest drop in property transactions in Malaysia in a decade, prompting more fears that the property market slowdown could be worse than anticipated. Analysts and think tanks warn that the problem could be structural in nature, where demand for affordable properties is inadequately met, given developers’ penchant for building high-end real estate.

Malaysia's mixed export/import numbers

What’s going on: Export numbers for May showed an unexpected 0.9% dip y-o-y (compared with a 1.6% increase y-o-y in April) while imports rose 3.15% y-o-y (compared with a 2.3% drop y-o-y in April).

What it means: Malaysia’s export numbers are not looking good. TA Securities attributes the weaker-than-expected exports to lower sales of crude oil and liquefied natural gas as well as reduced exports to China and Singapore. It also notes that on average, total exports were down 0.4% y-o-y in April and May, something that does not bode well for 2Q2016’s GDP growth. Risks remain, given further volatility expected post-Brexit. However, TA Securities says better import numbers could suggest a potential rebound in domestic demand.

Manufacturers not making a recovery yet

What’s going on: The Nikkei Malaysia Manufacturing Purchasing Managers Index (PMI), which tracks the health of the country’s manufacturing sector, indicates that local manufacturing has been in a state of stagnation over the last three months. Global manufacturing, as tracked by the JPMorgan Global Manufacturing PMI, showed a slight recovery in June, albeit a largely subdued year thus far for manufacturers worldwide.

What it means: Malaysia’s manufacturing sector is not in the best of times going by the Nikkei Malaysia Manufacturing PMI. A weaker ringgit ought to help exports but this does not seem to be the case. Some economists and analysts have been cautioning about fragile trade growth in the coming months.

Yay for crude oil recovery?

What’s going on: Crude oil prices have been staging a recovery since the shock dip below US$30 per barrel in January. Prices are now hovering just above US$50 a barrel, still some distance from the US$60 levels seen a year ago.

What it means: Oil producing countries like Malaysia would certainly welcome stronger crude oil prices but there is not a lot of optimism that prices will steadily increase throughout the year. There are concerns about whether global demand will hold up as output by Opec members remains strong. Analysts also fear that the recent rally in the US dollar may impact crude oil prices.

The mighty greenback vs other currencies

What’s going on: Year to date, the ringgit has weakened 6% to 4.0345 against the US dollar last Friday. The greenback surged 12% over two days post-Brexit to 0.756 against the pound sterling on June 27. Last Friday, it closed at 0.77 against the pound, easing off a five-year high of 0.7747 a day earlier.

What it means: For most of the first six months, the ringgit had a volatile run, struggling to recover against the greenback.

Major economies are struggling for growth

What’s going on: The US’ GDP grew 2.1% y-o-y in 1Q2016, keeping pace with that of the last three quarters. Eurozone’s GDP growth stayed flat at 1.7% in 1Q2016 and 4Q2015 while China’s GDP slowed to below 7%.

What it means: Global economic powerhouses are grappling with a new normal — a period of low growth and in some cases, even negative growth. The World Bank recently revised downwards its 2016 global growth forecast to 2.4% from the 2.9% it projected in January. It warns of a cocktail effect of “sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade and diminishing capital flows”.

China's appetite is in negative zone

What’s going on: China export and import numbers remained in the negative zone (-5% y-o-y growth for exports and -6.2% for imports) in June. The world’s second largest economy has been growing at its slowest rate in 25 years, prompting a fall in global commodity prices.

What it means: China’s strong appetite has been a boon for many regional economies, Malaysia included. But when the giant is not consuming as much as it used to, its trade partners feel the pinch. China is Malaysia’s largest trade partner, making up 15% of total trade. At present, 11.3% of Malaysia’s exports go to China and any slowdown in the dragon economy is bad business for Malaysia.

US interest rates stay near zero

What’s going on: The US Federal Reserve met in mid-June and held off raising interest rates this time around. It has been six months since the Fed hiked interest rates last December for the first time in almost a decade.

What it means: If at all the Fed is going to increase interest rates, it will not do so in the foreseeable future. Notes released from the recent Fed meeting point to concerns over Brexit’s economic impact on the world economy as well as weaker-than-expected US labour market data. The next Fed meeting is slated for July 26 and 27, but economists largely expect no change in rates.

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