-  Malaysia’s economy grew by 4.3% YoY in 2Q13, which is broadly in line with our projection of 4.4% but is slightly below consensus forecast of 4.7%. As of YTD 1H13, Malaysia registered an expansion of 4.2% driven largely by the aggregate domestic demand growth of 7.7%.

-  On the production side, all sectors registered positive growth. Services remains the catalyst for growth considering its 54.8% contribution to GDP (or +4.8% YoY). Improvements in manufacturing (+3.3% YoY) and strong growth in construction (+9.9%) also contributed to growth in this quarter.

-  The increase on the expenditure side was driven by positive contributions from the Private Final Consumption Expenditure (+7.2%) and Gross Fixed Capital Formation (+6.0%). The expansion in both of these sub-segments has offset the sluggish performance in external trade. We also note that government final consumption expenditure has risen by a healthy 11.1% in 2Q13 (1Q13: +0.1%). All in all, aggregate domestic demand surged by 7.3% during the quarter (1Q13: +8.2%).

-  Prolonged weaknesses in the external environment have affected the overall growth performance of the economy. While domestic demand has remained firm, nonetheless the weak external sector during 1H13 will impair overall growth in 2013.

-  Based on BNM’s guidance yesterday, the overall growth for this year has been revised to 4.5%-5.0% (from its initial estimate of between 5.0%-6.0%). Going forward, domestic demand is expected to remain on its steady growth trajectory and will be supported by an accommodative monetary policy.

-  Backed by a stable growth in the domestic front, we are keeping our full year 2013 projection at 4.6%. Aggregate domestic demand could post a growth of 7.9% during the year. Overall, the level of domestic output will be backed by the healthy labour market condition. Note that Malaysia’s unemployment rate came in at 2.8% in June (May: 3.3%).

-  Barring strong external headwinds, the construction and sub-related sectors are likely to regain some traction in the later part of the year. Sturdy domestic demand could potentially alleviate external downside economic risk and concerns arising from the slowdown in external demand.

-  Overall macro policies will remain accommodative in the low inflation environment while the reserves position serves as buffers against unanticipated headwinds as the Federal Reserve may start paring its USD85bil monthly bond purchases as soon as next month.

-  As for 2014, Malaysian GDP could potentially grow by 4.8%driven by the aggregate domestic demand growth of 6.2% and its significantly high contribution to GDP of 94.8%. Despite this, there will likelybe fiscal tightening with plans to reduce subsidies on fuel during the forthcoming fiscal year.

-  On the upside potential though, rapid resolution to the uncertainties in terms of macro policies in the US and the uplift in confidence in the European front will speed up economic recovery of developed economies and foster growth in export dependent economies.

Source: AmeSecurities