Malaysia’s growth set to revive as trade war clouds gather

KUALA LUMPUR: Malaysia’s economy is set to regain its stride after an unsteady year of reforms following a change of government, but the rebound could be short-lived as risks loom from the US-China trade war.

Gross domestic product likely expanded 4.7% year-on-year in the second quarter, from 4.5% in the previous period, according to the median estimate of 22 analysts surveyed by Bloomberg.

Suhaimi Ilias at Maybank Investment Bank Bhd, the most accurate economist over the past two years, expects 4.8% growth.

Loan growth surged to 6.3% in June from a year ago, compared with 4.6% in May, with the bulk of it going for personal use and property purchases, according to MIDF Research.

That could point to strong domestic consumption in the GDP numbers, MIDF senior analyst Imran Yassin Md Yusof said.

The central bank’s interest-rate cut in May helped demand for loans, as it may have increased the eligibility of potential borrowers.

“We think the GDP is going to be on an increasing trend for the year, ” said MIDF economist Muhammad Zafri Zulkeffeli, who expects the economy grew 4.8% in the second quarter. “The overnight policy rate will continue to have a positive effect, while construction activity will support growth.”

Industrial production growth held up at around 4% in the second quarter as mining output increased 3.3% following six consecutive quarters of contraction. Inflation picked up to 1.5% in June, the fastest pace since May 2018.

“Based on the latest indicators, we think that there is a chance for the second quarter to surprise on the upside, ” said Julia Goh, an analyst at United Overseas Bank Ltd, who sees growth at 5%. “We think it could be a short-lived rebound, in view of all the external risks and challenges, such as the escalation of trade tensions re-materialising.”

The worsening trade war between China and the US means Malaysia isn’t out of the woods yet.

“It’s going to be a bumpy ride, ” said Mohd Afzanizam Abdul Rashid, chief economist at Bank Islam Malaysia Bhd. “The situation on the trade war is very fluid and this is not good for business sentiment. As a result, businesses would remain cautious and this can affect their decision on capital expenditure and labor hiring.”

While the rebound in mining helps offset slower expansion elsewhere, the trade war could lead growth to moderate in the second half, Hong Leong Investment Bank Bhd analysts wrote in a research note. — Bloomberg