‘Boost seen from construction sector’
Source from: New Straits Times, Original Article
KUALA LUMPUR: There will likely be a significant rebound in investment activities and continuous upward trajectory for domestic consumption in the second half of the year, analysts said.
The construction sector is expected to be busier, with its effect would spill over to the transportation and storage subsector under the services sector, they added.
MIDF Research analyst Adam Mohamed Rahim said the progression in infrastructure projects such as the East Coast Rail Line (ECRL) and Light Rail Transit 3 (LRT3) would boost spending and investment in the medium and long terms.
Adam said construction activities were expected to pick up steam in the second-half of this year. This would in turn lead to spillover effects on the transportation and storage subsector.
“This is because precast structure would have to be transported to construction sites,” he added.
The services sector accounted for 57.2 per cent of Malaysia’s total gross domestic product (GDP), having expanded steadily at 6.1 per cent year-onyear (YoY) in the second quarter.
The transportation and storage subsector followed suit to record the fifth largest growth among 17 services subsectors with a 7.0 YoY growth during the period.
Malaysia’s economy expanded 4.9 per cent in the second-quarter, above market expectations and analysts forecast.
The construction sector grew 0.5 per cent YoY during the quarter, underpinned mainly by the civil engineering subsector which grew 5.4 per cent YoY.
Adam said among the 10 sectors that outperformed Bursa Malaysia’s key FBM KLCI, KL Construction Index was leading gainers with a 36.3 per cent year-to-date gain.
The KL Transportation Index only gained 3.4 per cent so far this year, but it was an improvement from last year’s 17.5 per cent decline.
Adam believes notable developments in the construction sector could also stem from the outcome of Pan Borneo Highway Sabah and Johor-Singapore Rapid Transit System Link projects, with each carrying a value of RM12.8 billion and RM4.0 billion respectively.
Affin Hwang maintained an “overweight” call on the construction sector.
Its construction analyst Loong Chee Wei said major infrastructure projects would be awarded through an open tender basis for local players.
He said local contractors should provide competitive pricing with proven track record and technical capability.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said construction sector was an important premise for Malaysia’s economic growth going forward.
“Over dependence on consumer spending could prove to be a risky endevour as consumer sentiments have been quite weak. In that sense, he momentum may not be sustained,” he told New Straits Times.
Therefore, he said the government needs to play an active role as private sectors are expected to be very cautious in the spending especially private investment.
“The central bank has cut the OPR and this would help to spur economic activities. As such, accelerating the implementation of infra related projects would complement such in particular the construction and its spillover effects to other related sector,” he said.
CIMB Bank group chief economist Dr Donald Hanna said domestic consumption in Q2 was growing at 13 per cent, which was seasonally adjusted and annualised.
“However, it will not grow that fast in the second half of the year. Year on year growth may improve but we have seen the faster pace of consumption for 2019,” he said.
Dr Hanna said gross fixed investment was up 7.0 per cent seasonally adjusted and annualised in Q2, a huge recovery from the 7.0 per cent drop in the first quarter. Hence, its recovery will likely accelerate.
Asian Strategy and Leadership Institute Centre of Public Policy Studies chairman Tan Sri Ramon Navaratnam did not concur with analysts, citing that the world and local economies were slowing down.
“Although, the government is involved in the ECRL, it may not be sufficient to compensate for the slowdown in economy, which affects domestic consumption.
“The government is still in financial strain, as there is still lack investment in other areas to keep the momentum growing,” he told the New Straits Times.
Navaratnam said it was important to encourage the private sector to participate in developing the country’s infrastructure project.