Weak manufacturing to weigh on Q4 GDP growth: Kenanga

PETALING JAYA: Kenanga Research has reiterated its view for growth moderation in manufacturing output that will subsequently weigh on gross domestic product (GDP) growth in Q4 2016, following the latest weak Purchasing Managers’ Index (PMI) data.
“For this reason, we had, in November, revised down our Q4 2016 GDP forecast to 4.3% from 4.7%,” it said in a research note yesterday.
Going forward, Kenanga Research anticipates a further recovery in domestic demand to lend some support to the embattled manufacturing sector and lift its overall growth.
Nevertheless, it foresees volatile consumer spending constrained by high household debt and the uncertain global economic conditions to pose downside risks to the growth in manufacturing sector.
“We thus believe that any recovery in the manufacturing sector in 2017 would be gradual and modest at best. Hence, we project Malaysia’s GDP growth to nudge up slightly to 4.5% in 2017 from an estimated 4.2% last year,” it added.
The PMI reading remained unchanged at 47.1 in December, marking its 21st consecutive month of contraction as indicated by the sub-50.0 reading.
The index averaged 47.1 in Q4 2016, which is markedly lower than the 48.0 reading registered in Q3 2016. The tepid domestic economy and volatile external demand remain as factors that weighed down on the manufacturing sector.
The sub-groups of new orders, output, and stocks of purchases extended their decline in December. Kenanga Research believes it would be a long road ahead before the production could regain its recovery momentum and return to a stronger level.
On a positive note, employment level rose for the fourth month though at a softer pace.