Malaysia 2Q12 GDP - Expands 5.4% despite sluggish global economy

HIGHLIGHTS

 Malaysia’s 2Q12 GDP expanded by 5.4% YoY from a revised 4.9% (4.7% previously) in the 1Q12 despite the sluggishness that befell the global economy, beating consensus forecasts of 4.2% as well as ours at 5.0%. This boost in the GDP is largely credited to a strong domestic demand, which grew by 13.8% in the 2Q12 from 9.7% in the first three months of the year. On a quarterly basis, the GDP rebounded by 5.4% QoQ from a contraction of 4.1% previously. The average GDP growth for the 1H12 is 5.1%. 

 On the supply side,  the sharp increase in the construction sector was the main highlight. It jumped 22.2% YoY, beating the previous quarter’s strong performance of 15.5% growth. It contributed 0.7 percentage points (ppts) to GDP, by far the highest in more than a decade. This is largely due to strong developments of the  civilengineering sub sector (+39.8%) as mega projects under the Economic Transformation Programme (ETP) churns at full steam. There was also a solid growth in residential construction (+20.1%), which was driven by high-end residential projects in the Klang Valley.  

 But the main surprise on the supply side was the manufacturing sector which came at an unexpectedly higher 5.6% YoY from 4.4% as demand from China, Japan and the USA continue to be stronger than expected. Thus its contribution to GDP rose to 1.4 ppts from 1.1 ppt in 1Q12. On closer inspection, the main contributor to the higher manufacturing growth was the steady recovery of E&E manufacturing (+3.5 from 0.4%) due to strengthening demand in Asia and the USA. Meanwhile, it is unsurprising to see that manufacturing of commodity-based products became a significant boost for this sector, to fulfill the ever-growing demand coming from Eastern economies. However, the question still remains on whether or not this recovery is sustainable, especially concerning the USA. There is every possibility that this is more of a seasonal factor leading up to the summer season, of which retail sales traditionally improves. Sustainability remains to be seen in the later half of the year, as data from  across the pacific is not rebounding as speedily as hoped. 

 Services, the biggest contributor from the supply side, grew by 6.3% from 5.3% in the previous quarter.  This led to a higher percentage point contribution to GDP at 3.4 from 2.7 ppts in 1Q12. Much of this is being backed by the 5.9% growth of the wholesale & retail trade and 6.6% expansion of the finance & insurance sector. Professional services related to engineering services hold a considerable accountability for the 8.8% pick up in business services. This is further testimony of the multiplier effect coming from projects under the ETP initiation, even at early and mid stages of the projects. 

 Improvement is finally recorded in the mining sector (+2.3%) after five consecutive quarters of contraction. The 8.8% growth in the production of crude oil shows that upgrading works have finally come to an end. Despite the 4.4% fall in natural gas production, demand for LNG from Japan has remained strong, as share of alternative fuels to nuclear energy has been on the record high since the Fukushima incident over a year ago. Dissent over the restarting of nuclear power plants leads to every possibility of a steady demand moving forward. The agricultural sector was the only sector to experience a contraction – falling by 4.7%. This is mainly due the drop in CPO price and production and a high base-effect – a result from last year’s production boom. We do however expect this sector to rebound by the 3Q12.    

Source: Kenanga