-  The Malaysian economy expanded by 4.7% in 2013, compared to our and street estimates of 4.8% and 4.7% respectively (2012: +5.6%). Aggregate domestic demand grew by 7.6% last year (2012: +10.6%). Meanwhile, net exports accounted for 6.3% of total GDP in 2013 vs. 8.5% in 2012.

-  On the supply side, the construction segment accelerated by 10.9% (2012: +18.1%). The construction sector accounted for 3.7% of GDP in 2013.

-  Malaysia’s GDP grew by 5.1% YoY in 4Q13 owing to higher contribution of net trades during the quarter (3Q13: +5.0% YoY). The increase on the demand side was driven by positive contributions from the Private Final Consumption Expenditure (+7.3%) and Gross Fixed Capital Formation (+5.8%).

-  All in all, aggregate domestic demand registered a moderated growth of 6.4% YoY in 4Q13 compared to 8.3% in 3Q13. On the other hand, trade surplus advanced to RM16.19bil in 4Q13 compared to RM12.88bil in 3Q13. Net exports accounted for 7.8% of real GDP in 4Q13 (3Q13: 6.4%).

-  Private consumption slowed down in 4Q13 owing to weak economic sentiments and stringent lending guidelines by financial institutions. Economic indicators were generally weaker in 4Q13 compared to the preceding quarters. Forward looking indicators in 3Q13 and 4Q13 also pointed to softer domestic growth in the next three to six months.

-  Our full-year GDP projection for 2014 is 5.1%. Growth is expected to be backed by relatively stronger net trades coupled with a healthy labour market condition. Note that Malaysia’s unemployment rate was 3.4% in November and has been trending at full employment since March 2009.

-  Going forward, domestic demand is expected to soften amid headwinds in the domestic economy. Although global economy is picking up gradually, there is a prevailing uncertainty as fiscal consolidations in the domestic front could potentially restrict domestic demand growth in the near term.

-  Risks ahead for the Malaysian economy include:- (i) fiscal consolidation efforts and softer growth in public spending; (ii) slowdown in loan’s growth due to stringent lending practices by financial institutions; (iii) gradual removal of subsidies which could spur a rise in prices; (iv) a liquidity squeeze owing to the massive reversal of carry trades; and (v) potential interest rate hike during 2H14. 

Source: AmeSecurities