Sentiment towards the Malaysian economy has taken an unexpected negative turn following the news that the Malaysian economy expanded by a much slower pace than forecast between April – June.

Expectations for the second quarter GDP reading were above 5%, but the headline number of 4.5% is far below forecast. This reading will also likely accelerate some underlying concerns that the overall growth outlook for the Malaysian economy in 2018 will need to be readjusted lower.

However, according to Jameel Ahmad, Global Head of Currency Strategy and Market Research of FXTM, there is every possibility that this reading is a “one-off” miss following the previous trend for around the last 18 months being that Malaysian economic data has performed beyond expectations.

“However, we are also starting to see what could be a trend of emerging market’s growth in the SEA region trending lower. The GDP reading from Singapore last week also missed expectations, while Bank Indonesia (BI) has been battling for much of the past year to make Indonesia central bank policy more accommodative towards reinvigorating the domestic economy. Fears are also re-emerging that China’s economy is cooling down after data this week showed that fixed asset investment in China is growing at its weakest pace ever.”

He suggested that the potential trend of economic growth in the Asian region dipping lower highlights how the regional economy can be impacted by external headwinds.

“I do not think the recent run of economic data disappointing at a time where risk appetite towards investing in the region is limited is a coincidence. Ongoing trade war concerns and the underlying political risk from the unpredictability of the Trump Administration is an ongoing theme that investors are having to continuously monitor, and it does certainly hold the potential to have a negative impact on economic growth,” he added.

The Malaysian economy, as measured by gross domestic product (GDP), grew 4.5% year-on-year (y-o-y) in the second quarter of 2018 (2Q18), driven by the private sector, according to Bank Negara Malaysia (BNM).

BNM said in a statement last week supply disruptions resulted in the slower y-o-y economic growth of 4.5% in 2Q18 compared to the 5.4% expansion in 1Q18.

"Private sector activity continued to be the primary driver of growth as both private consumption and investment expanded strongly during the quarter. On the supply side, growth was affected by commodity-specific shocks. Growth in the mining sector contracted due mainly to unplanned supply outages, while the agriculture sector was affected by production constraints and adverse weather conditions.

"Going forward, the Malaysian economy is expected to remain on a steady growth path. Growth is expected to be sustained, supported mainly by private sector activity. Positive labour market conditions and capacity expansion will continue to support robust private consumption and investment respectively," BNM said.

At a press conference, BNM Governor Datuk Nor Shamsiah Mohd Yunus said major economic sectors, notably the services and manufacturing sectors, remained supportive of growth.
On the demand side, Nor Shamsiah said production weakness was reflected in the lower net export growth while public investments contracted.

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