FORECAST ANALYSIS FOR QUARTER 3 YEAR 2019

Economic Modelling and Public Policies Section,

Fiscal & Economics Division, Ministry of Finance Malaysia

Date: 11 November 2019

1.0 Background
The Malaysian economy is expected to expand at 4.6% in the third quarter of 2019,
driven by private consumption (demand side) and services sector (supply side)
following low unemployment, stable wage growth as well as three consecutive long
weekends in early September 2019 (Merdeka Day, Agong celebration and Malaysia
Day). Consumer Price Index (CPI) in 3 rd Quarter 2019 recorded a small and positive
growth of 1.3% reflecting higher consumer confidence.
Exports fell 1.9% year-on-year (y-o-y) in 3 rd quarter 2019. The decrease of exports
was attributed by lower exports to Hong Kong, Singapore, Australia, the European
Union and Thailand. Meanwhile, imports also registered a decrease of 5.8% y-o-y.
Lower imports were mainly from Singapore, Taiwan, the European Union, Thailand
and Switzerland.
This forecast/ nowcast is generated via the
a) Macro-econometric Model of Malaysia (MMM) for demand side as well as
other variables namely oil price, exchange rate, public consumption and
investment and producer price index;
b) Indicator Based Model (IBM) for supply side;
c) Vector Autoregression (VAR) and Autoregressive Integrated Moving Average
(ARIMA) for naïve forecast/ data driven approach;
d) Treasury Inflation Model (TIM) for consumer price index.
2.0 Forecast Assumptions
Variables 2019 2020
Global demand (IMF)* 3.0 3.4
Oil Price (Brent) USD** 67.7 71.7
Exchange Rate (US)** 4.1 4.1 Source:
Public Consumption** 2.6 2
Public Investment** -6.6 2.3 IMF World
CPI*** 1.1 2.4 Economic
PPI** -2.4 5.0 Outlook, October
2019 *
Macro-econometric Model of Malaysia (MMM) **
Treasury Inflation Model (TIM) ***

3.0 Other Institutions Forecast

1
Organisation Forecast**** As of Notes
UBS 4.2 11/01/19
ING Group 4.8 10/07/19
HSBC Holdings 4.6 09/26/19
BIMB Securities Sdn Bhd 4.5 08/22/19
Capital Economics 3.9 08/22/19
Deutsche Bank 4.4 08/22/19
Goldman Sachs Group 3.7 08/22/19
Kenanga Investment Bank Bhd 4.4 08/22/19
RHB Research Institute Sdn
Bhd 4.5 08/22/19
Average 4.3

Source: Bloomberg database, organisations website ****

Next section is arranged as follows:

Section 4.0 and 4.1 (MMM forecast quarterly and annual – constant)
Section 5.0 and 5.1 (MMM forecast quarterly and annual – nominal)
Section 6.0 and 6.1 (MMM forecast range – quarterly and annual)
Section 7.0 and 7.1 (Comparison with other forecasts – quarterly and annual)
Section 8.0 (IBM nowcast)

2
4.0 MMM’s Quarterly Forecast (constant)
Variables 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3
GDP 4.4 4.7 4.5 4.9 4.8 3 4.6 4.7 4
Consumption 8.2 7.4 7.4 6.5 5.7 5 5.5 5.8 5.4
Private Consumption 8.9 8.4 7.6 7.8 6.4 5.9 6.2 6.5 6.1
Public Consumption 5.2 4 6.3 0.3 2 2 2 2 2
Gross Fixed Investment 2.8 0.6 -3.5 -0.6 -5.1 -2.1 1.2 1.9 2.4
Private Investment 5 6 0.3 1.3 -6 -1.9 -1 -0.5 -0.1
Public Investment -2.7 -5.8 -13.2 -7.4 -2.9 -2.3 7.9 11.2 8.8
Exports 0.7 3.1 0.1 0.1 -2 -0.5 0.4 1 1.3
Imports 2 1.8 -1.4 -2.1 -3.4 -0.5 1 1.8 2.2

4.1 MMM’s Annual Forecast (constant)

Variables 2018 2019 2020
GDP 4.7 4.3 4.3
Consumption 7 6.2 5.6
Private Consumption 7.9 6.9 6.3
Public Consumption 3.2 2.6 2
Gross Fixed Investment 1.3 -2.8 2.1
Private Investment 4.4 -1.6 -0.3
Public Investment -4.9 -6.5 8.4
Exports 2.2 -0.6 1.1
Imports 1.3 -1.9 1.8

3
5.0 MMM’s Quarterly Forecast (nominal)
Variables 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3
GDP 5.7 5.1 4.4 5 5.2 3.4 5 5.1 4.4
Consumption 12.8 14.4 7.7 8.8 5.8 5.1 5.6 5.9 5.5
Private Consumption 14.3 17.4 8 10.5 6.5 6 6.3 6.6 6.2
Public Consumption 5.4 4.2 6.1 0.4 2.1 2.1 2.1 2.1 2.1
Gross Fixed Investment 3.1 1.4 -2.7 0.6 -5.1 -2 1.3 2 2.5
Private Investment 5.4 6.8 1.1 2.6 -5.6 -1.5 -0.6 -0.1 0.3
Public Investment -2.3 -5.1 -12.5 -6.2 -2.5 -2 8.3 11.6 9.3
Exports 3.2 5.3 1.1 0.9 -1.9 -0.4 0.5 1.1 1.4
Imports 5 4.4 -0.4 -1 -3.3 -0.4 1.1 1.9 2.3

5.1 MMM’s Annual Forecast (nominal)

Variables 2018 2019 2020
GDP 5.5 4.5 4.8
Consumption 11.2 6.8 5.7
Private Consumption 13 7.7 6.4
Public Consumption 3.5 2.6 2.1
Gross Fixed Investment 1.9 -2.3 2.1
Private Investment 4.8 -0.7 0
Public Investment -4.4 -5.4 8.5
Exports 3.5 -0.1 1.2
Imports 3.1 -1.3 2

4
6.0 MMM’s quarterly forecast range (standard errors)
Variables 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3
Minimum 4.3 4.6 4.4 4.8 4.7 2.9 4.5 4.6 3.9
Growth forecast 4.4 4.7 4.5 4.9 4.8 3 4.6 4.7 4
Maximum 4.5 4.8 4.6 5 4.9 3.1 4.7 4.8 4.1

6.1 MMM’s annual forecast range (standard errors)

Variables 2018 2019 2020
Minimum 4.7 4.2 4.2
Growth forecast 4.7 4.3 4.3
Maximum 4.8 4.4 4.4

7.0 Comparison with other forecast method (Quarterly)

Forecast Comparison
Method 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3
MMM 4.4 4.7 4.5 4.9 4.8 3 4.6 4.7 4
VAR 4.4 4.7 4.5 4.9 4.6 4.4 4.6 4.2 4.4
ARIMA 4.4 4.7 4.5 4.9 4.9 5 5.2 5 5
Average (MSE) 4.4 4.7 4.5 4.9 4.8 3.8 4.7 4.6 4.3
IBM 4.4 4.7 4.5 4.9 4.5 NA NA NA NA

5
7.1 Comparison with other forecast method (Annual)

Forecast Comparison
Method 2018 2019 2020
MMM 4.7 4.3 4.3
VAR 4.7 4.6 4.4
ARIMA 4.7 4.8 5.1
Average (MSE) 4.7 4.5 4.5
IBM NA NA NA

8.0 IBM nowcast

Nowcast component
Method 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3
GDP 4.4 4.7 4.5 4.9 4.5
Services 7.3 6.9 6.4 6.1 6
Manufacturin
g 5 4.7 4.1 4.36 3.9
Construction 4.7 2.6 0.3 0.5 -1.4
Mining -5.7 -0.7 -2.1 2.9 -4.4
Agriculture -0.7 -0.1 5.6 4.2 1.4