-  Based on the World Economic Outlook released by the IMF yesterday, global growth is expected to be restrained due to the macro challenges in emerging economies. The Fund had downward revised 2013 and 2014 growth projections to 3.1% and 3.8% respectively (from 3.3% and 4.0% as seen in April).

-  Specifically, the IMF highlighted downside risks to global growth prospects as major emerging market economies battle with the weak external demand growth, lower commodity prices and concerns over financial stability. These countries have been struggling between pro-growth macro policies and also policies to contain capital flights.

-  As for the U.S. economy, expansion was weaker than expected in 1Q13 as stronger fiscal contraction weighed on improving private demand. By contrast, growth was stronger than anticipated in Japan, driven by the boost in consumption and net exports.

-  Meanwhile, recession in the euro area was deeper than expected on the back of lacklustre demand, depressed confidence, weak balance sheets that exacerbated the effects on growth, and the impact of tight fiscal and financial conditions.

-  Turning to forecasts, the IMF expects the U.S. growth to advance from 1.7% in 2013 to 2.7% in 2014; Japan will probably average at a 2.0%growthin 2013 before moderating to 1.2% in 2014; the euro area will remain in recession in 2013 with activity contracting by 0.6%, and growing by 0.9% in 2014. Note that in April 2013, the IMF had envisaged grow rates for Malaysia of 5.1% and 5.2% for 2013 and 2014 respectively.

-  We believe that uncertainties in the external environment will remain a drag on global demand while global growth catalyst will mainly come from consumption demand boost in the U.S. Our full-year 2013 GDP growth assumption for Malaysia of 5.3% takes into consideration challenges in the global arena. But there is a potential downside risk to our growth estimate in 2H13 as domestic demand growth could slow down.

-  We are cautious in termsof private consumption demand in 2H13 followingthe recent imposition of the new lending guidelines by BNM. Loan’s growth will likely slow down in the near term but the financial system will be backed by healthier credit expansion in the longer term. As an overall contribution to GDP, the private final consumption expenditure accounts for 50.6% in 2012 and 52.1% in 1Q13.

-  As for 2Q13, the drag in net trades will be offset by a relatively robust domestic demand as we expect the private consumption to stay strong during the quarter. Meanwhile, global trades in 2H13 are likely to pick up pace owing to the rebound in the U.S. Based on our quarterly projection, we expect GDP to grow by 4.9% in 2Q13 backed by an aggregate domestic demand growth of 9.9%.

Source: AmeSecurities