-  The Malaysian economy registered a strong growth of 6.4% YoY in 2Q14 (1Q14: +6.2%), outperforming its regional counterparts.

-  Meanwhile, domestic demand grew at a slower pace of 5.7% in 2Q14 (1Q14: +7.4%) owing to the contraction in public spending.

-  Private consumption increased at a softer pace of 6.5% (1Q14: +7.1%). Growth was supported by stable employment conditions and continued wage growth.

-  In contrast, public consumption fell by 1.3% on the back of lower government spending on emoluments, and supplies and services (1Q14: +11.2%).

-  Total investment had advanced to 7.2% YoY in 2Q14 from 6.3% in 1Q14, as public investment registered a slower rate of contraction.

-  Meanwhile, trade surplus had moderated slightly to RM18.2bil in 2Q14, compared to RM18.8bil in 1Q14. Net exports accounted for 8.8% of real GDP (1Q14: +9.5%).

-  In terms of growth though, net trades had advanced by a healthy 91.0% YoY in 2Q14 (vs. +14.9% in 1Q14).

-  On the supply side, growth in the major economic sectors remained firm, supported by trades and domestic activities.

-  The services sector recorded a growth of 6.0% (1Q14: +6.6%), driven mainly by the trade-related sub-sectors.

-  The manufacturing sector expanded at a faster pace of 7.3% (1Q14: +6.8%), underpinned by the electronics and electrical cluster, particularly semiconductors.

-  On a YTD basis, GDP grew by 6.3% YoY in 1H14 driven by the improvement in net trades (1H13: +4.4%). Trade surplus had advanced by a healthy 42.9% YoY in 1H14 vs. -23.7% in 1H13.

-  We are tweaking our full-year GDP growth projection upwards by 0.4ppt to 5.7% for 2014, owing to the higher than expected growth in 2Q14.

-  Forward-looking indicators for the consumer segment suggest that the economy will be supported by private consumption spending in 3Q14.

-  As for interest rate, we expect the OPR to be retained at 3.25% during the next Monetary Policy Committee meeting on 18 September, despite the stronger than expected economic growth in 2Q14.

-  We believe that the rate increase in July coupled with other macro prudential measures by BNM will help to ensure that the level of household indebtedness remains in check.

Source: AmeSecurities