Straits Herald February 12, 2020

A Malaysian MP sounded the warning bells that the Malaysian economy is going to drag even further following the dismal GDP figures presented by the Central Bank of Malaysia (BNM) earlier today.

Wong Chen, MP of Subang Jaya, an urban seat near the capital, argues that not only is the 2019 figures the slowest growth in the past 10 years, the outlook for 2020 is not looking good either.

He continues on saying that the impending gloom presented by the outbreak of the coronavirus and the slow palm oil market is going to see the first quarter growth of 2020 to also slowdown even further.

He calls upon the Minister of Economic Affairs of Malaysia, Azmin Ali to explain to the public on the next steps on arresting this slide.

Immediate concerns on Palm Oil

Malaysian palm oil end-stocks fell for a fourth consecutive month in January to the lowest level in over two years, according to data released by the Malaysian Palm Oil Board (MPOB) yesterday.

Stocks as at end-January fell 12.7% month-on-month (m-o-m) to 1.76 million tonnes, well below the two million tonne-mark that was breached in September 2017. In December 2019, inventories stood at 2.01 million tonnes.

M-o-m production, meanwhile, fell 12.6% to 1.17 million tonnes in January, while exports decreased 13.2% from December to 1.21 million tonnes, MPOB figures showed.

Coronavirus impact on 1Q20

Going into 2020, economic growth, particularly in 1Q20, will be affected by the outbreak of the novel coronavirus (Covid-19), BNM said.

It said the overall impact of the outbreak on the Malaysian economy will, however, depend on the duration and spread of the outbreak as well as policy responses by authorities. 

Through a statement, BNM argues that for the year as a whole, growth will be supported by household spending, the realisation of approved private investment projects in recent periods, and higher public sector capital spending.

“Nevertheless, there are downside risks to growth. These include uncertainties in external conditions arising from the ongoing coronavirus outbreak,” BNM added.

Slower than expected growth

Earlier this week, CGS-CIMB Research expected growth in 4Q19 to slow down to 4.0% due to commodity drag.

In a research note published on Monday (10 Feb), they argue that near-term outlook remains challenging as the coronavirus outbreak could exert a drag of 0.5% points on headline GDP for 1Q20.

However data presented by BNM and the Department of Statistics Malaysia (DOSM) paints an even gloomy outlook.

Data for 4Q19 shows Malaysia growing at 3.9%, undercutting even CIMB’s forecast figures.

This is the third consecutive quarter where Malaysia’s growth shrinks qoq.

CIMB says that a moderation in Malaysia’s quarterly GDP growth to 4.0% yoy in 4Q19 (+4.4% in 3Q19), the slowest pace since 2009 could take place.

CIMB’s argument was that the main drag was agriculture (CGS-CIMB: – 0.4% pt in 4Q19F vs. +0.3% pt in 3Q19), weighed down by a 17% drop in crude palm oil production (+8.6% yoy in 3Q19) due to lower fertiliser application a year ago, biological tree-stress and dry weather – a trend that is likely to extend into 1Q20.

Contraction in the mining sector persisted for a second consecutive quarter, based on data from the Industrial Production Index (See Fig 1). Furthermore, consensus reached in Dec among OPEC+ to reduce crude oil supply by an additional 0.5mbpd as well as disruptions to the Sabah-Sarawak Gas Pipeline would weigh on the mining sector in 1Q20.

Maybank forecast close to data

Another research house, Maybank Investment Bank Research estimated 4Q 2019 GDP to moderate to 3.8%.

Maybank Investment Bank Research (Maybank IB) has estimated the gross domestic product (GDP) growth for the fourth quarter (4Q) 2019 to moderate to 3.8 per cent year-on-year (YoY) based on drops in mining and agriculture, plus a slowdown in manufacturing.

This is despite a pick up in services and construction.

Next steps?

CIMB says that to cushion the negative external spillovers and avert the downward slide in GDP growth, the Ministry of Finance is in discussions with the Ministry of Economic Affairs, Ministry of Tourism, and Ministry of International Trade and Industry to craft a stimulus package.

These measures could include an accelerated disbursements of development expenditure and fast-tracking of key infrastructure projects and a tax deductions for companies in hard-hit sectors amongst other actions.