- On the back of a strong expansion in domestic demand,
along with robust levels of trade-related activities and a lowbase effect,
Malaysia’s economic expansion quickened to 5.4% YoY in the second quarter,
compared with the revised growth of 4.9% YoY in 1Q12.
- The strong rate came in as a huge surprise to the market
as it was much higher than the market estimate (Bloomberg Poll) of 4.6% as well
as our house estimate of 4.8%.
- The main contributors on the supply side were still the
services and manufacturing sectors, while private final consumption drove the
economy on the demand side.
- Strong levels of domestic expenditure as well as resilient
external demand ensured a pick-up in manufacturing growth at 5.6% YoY (1Q12:
+4.4%).
- The services sector remained as the main contributor to
GDP (54.5% of total GDP), expanding at a faster rate of 6.3%min 2Q12, versus
5.3% in the previous quarter.
- Construction experienced a massive upsurge with a growth
rate of 22.2% (1Q12: +15.5%) due to the rise in residential and civil
engineering sub-sectors. We expect to see strong levels of growth for this
sector in the coming quarters, especially due to the ongoing projects under the
ETP.
- While the Mining and Quarrying sector also improved in the
second quarter, the Agriculture sector contracted by 4.7% in 2Q12, attributed
to slower output in oil palm as well as the rubber sub-sectors.
- In terms of expenditure, domestic demand continued to be
the main driver of growth, expanding by 13.8% in 2Q12 (1Q12: +9.7%), which was
led by a sustained expansion in household and business spending.
- Buoyed by favourable labour market conditions and positive
consumer confidence, private consumption continued its positive trend and
expanded by 8.8% (1Q12: 7.4%). Among the positive factors was the effect of the
BR1M handouts that were given at the end of the previous quarter.
- Growth in investment accelerated to 26.1% (4Q12: 16.1%).
Apart from rising oil & gas activities, the sharp increase in investments
was in line with the rise in construction given the higher spending on
structure and machinery & equipment.
- Despite declining global economic growth, Malaysia’s
export growth declined only marginally to +2.1% YoY in 2Q12 (1Q12: +2.8%),
while growth in imports accelerated to +8.1% YoY (1Q12: +6.8%).
- With regard to the full-year growth forecast and after
taking into account the sharp rise in the 2Q12 numbers as well as continued
uncertainties in the global economy, we estimate GDP growth to come in at
between 4.5% and 5% in 2012.
- We continue to believe that strong levels of domestic
demand will remain apparent in the following quarters, potentially leading to
growth reaching towards the upper end of the forecast range. However,
heightened levels of uncertainties as well as a slowing global economy remain
as the major downside risks to growth this year.
- Nevertheless, in the event of an unexpected severe
shortfall from the external sectors, we remain confident that Malaysia will
have the capacity to ensure strong levels of growth through both fiscal and
monetary measures that are still available.
- In terms of monetary policy, we believe at the current
level of 3%, the OPR continues to be at an accommodative level in promoting
growth, while ensuring adequate levels of price stability. As such, in the
current environment, we do not expect to see any rate cut in the quarters
ahead.
- However, in the event of severe financial market
disruptions, there is ample room for BNM to introduce rate cuts, given a
cushioning total of 160bps of positive real interest rates still available.
Source: AmeSecurities
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