2Q2018 advance GDP estimate unexpectedly slowed down to 3.8% y/y, while on seasonally adjusted basis, the GDP slowed down 1.0% q/q due to moderate growth from manufacturing and services with continued but slower contraction from construction. Despite the moderate growth, 1H2018 GDP grew on average by 4.1%, which is still higher than the central bank’s target of 2.5%–3.5%. We reiterate our full-year GDP projection of 3.8%. To achieve our full-year projection, we expect the 2H2018 GDP growth to slow down, averaging around 3.5%. Hence, we are of the view that the central bank will continue to tighten its monetary policy in October.

• 2Q2018 advance GDP estimate unexpectedly slowed down to 3.8% y/y from 4.3% y/y in 1Q2018. On a quarterly seasonally adjusted basis, GDP slowed down by 1.0% q/q from 1.5% q/q in 1Q2018.

• Slower growth came from manufacturing, which was up 8.6% y/y in 2Q2018 from 9.7% y/y in 1Q2018. Besides, the services sector, which accounts for two-thirds of the economy, rose albeit slowly by 3.5% y/y in 2Q2018 compared to 4.0% y/y in 1Q2018, as it continued to be supported by wholesale & retail trade, and finance & insurance.

• Meanwhile, the construction sector continued to fall but a slower pace by -4.4% y/y in 2Q2018 from -5.2% y/y in 1Q2018. The sector has been in the negative growth trajectory for the seventh consecutive quarter. Though there are signs of bottoming out on the back of some demand evident in the public and private sectors, we remain cautious on the back of new cooling measures introduced by the government – (1) increasing Additional Buyer’s Stamp Duty (ABSD); and (2) tightening loan-to-value (LTV) limits on residential property purchases.

• Although the sector expanded at a moderate pace, its growth sits comfortably above the five-year average of 3.3%. The manufacturing sector is expected to continue growing at a moderate pace on the back of signs of weaker global growth.

• Despite the 2Q2018 GDP posting a weaker growth, the 1H2018 GDP average stood at 4.1%, which is still higher than the central bank’s target of 2.5%–3.5%. We reiterate our full-year GDP projection of 3.8%, which means that the 2H2018 GDP growth should average around 3.5%. Hence, we expect continued monetary tightening by the central bank in October.

Source: AmInvest Research - 16 Jul 2018