We expect Q3 GDP to have risen by 4.4% y/y, improving from Q2’s 4.0% y/y. Manufacturing data for July and August indicates a better y/y performance than in Q2. The manufacturing sector expanded 3.2% y/y during the two-month period, compared with 2.1% growth in Q2. While not a robust performance, this does indicate that growth is not collapsing as it did in 2008-09.

Forward-looking indicators, such as the US ISM manufacturing index and China’s PMI, are easing, suggesting that Malaysia’s manufacturing sector will not turn around anytime soon. Robust rubber and crude palm oil production in Q3 are likely to have supported the agricultural sector.

The mining sector, however, may have continued to subtract from growth owing to weak crude oil extraction on a y/y basis, while natural gas production is growing only moderately. Meanwhile, loan growth is still relatively firm, and equity turnover has been steady since Q2. These factors should support financial-sector growth, despite weaker market sentiment.

On balance, we think economic activity is moderating but not collapsing. The output gap appears stable for now. While the external outlook is fragile, things are not falling apart. As such, we expect the central bank to maintain its neutral monetary policy stance for now.