The 2Q2017 GDP again beat both our 5.2% y/y and the market’s 5.4% y/y estimates to register a 5.8% y/y growth. Growth was supported by improved domestic demand, particularly private sector spending while activities from the supply side improved across the broad. Headline inflation declined to 4.0% due mainly to lower domestic fuel prices.

Following two consecutive quarters of strong growth, we have again revised upwards our 2017 GDP to 5.7% – 5.9% from previously 5.0%. Apart from the strong 1H2017 GDP growth of 5.7%, we expect a firm ringgit against the USD, stable inflation, healthy labour market and external demand as well as import growth should provide the growth momentum in the areas like construction, exports, services and private consumption which in turn will support manufacturing and also small and medium enterprises’ activities.

Despite a strong GDP performance, we believe the authorities would maintain the current overnight policy rate (OPR) at 3.00% for the remaining months of the year. It would mean that the negative real returns is poised to stay for most of 2017. Our 45% chance for a 25 basis points hike in the later part of 2H2017 still remains. Also we are holding our ringgit outlook against the USD at 4.31 – 4.33 for the fullyear average.

• 2Q2017 GDP again beat both our 5.2% y/y and the market’s 5.4% y/y estimates to register a 5.8% y/y growth. Together with a strong growth in the 1Q2017 of 5.6% y/y, the 1H2017 GDP averages at 5.7% y/y.

• Strong growth was supported by services, up 6.3% y/y in 2Q2017 from 5.8% y/y in 1Q2017 as well as private consumption, which rose by 7.1% y/y from 6.6% y/y in 1Q2017. This could be due to the festive season and some improvement in the disposable income with inflationary pressure being more stable.

• Besides, we noticed construction increased strongly by 8.3% y/y in 2Q2017 from 6.5% y/y in 1Q2017. This, added with healthy exports (up 9.6% y/y in 2Q2017 from 9.8% y/y in 1Q2017), supported the manufacturing sector which rose by 6.0% y/y in 2Q2017 from 5.6% y/y in 1Q2017.

• Following two consecutive quarters of strong growth, we have again revised upwards our 2017 GDP. From our initial projection of 4.4% which was then revised upwards to 5.0% following a strong 5.6% y/y 1Q2017 GDP, we now raised our 2017 GDP growth to 5.7% – 5.9%.

• Our upwards revision is partly due to the strong 1H GDP of 5.7%. The firm ringgit against the USD, expected to average 4.31 – 4.33 for the full-year of 2017, combined with stable inflation which is poised to hover around 3.8% – 4.0% for 2017, healthy labour market, firm external demand and favourable import growth trend should provide the growth momentum in the areas like construction, exports, services and private consumption which in turn will support manufacturing as well as small and medium enterprises’ activities.

• Despite a strong GDP performance, we believe the authorities would maintain the current overnight policy rate (OPR) at 3.00% for the remaining months of the year. It would mean that the negative real returns is poised to stay for most of 2017. Our 45% chance for a 25 basis points hike in the later part of 2H2017 still remains. Also, we are holding our ringgit outlook against the USD at 4.31 – 4.33 for the full-year average.

Source: AmInvest Research - 21 Aug 2017