- No change to our full-year GDP estimate of 5.2% for 2015. We maintain our full-year GDP estimate for 2015 at 5.2% (vs. 6.0% in 2014), pending the upcoming GDP release for 2Q15 on 13 August. However, growth in 2Q15 had probably moderated to +4.3%, from +5.6% in 1Q15. In 2Q15, economic activities were lacklustre on the back of the slowdown in household spending, weak business sentiments elevated prices, weaker-than-expected Ringgit currency, and contraction in exports.

- Household segment slows amid stringent lending guidelines, cautious spending and lower purchasing power. Domestic demand will likely be supportive of growth in 2Q15, albeit at a moderate pace. Loans growth for the household segment grew at a slower pace of 9.0% YoY in May on the back of higher prices and cautious spending. Loans growth for this segment has been on a downtrend since January 2014 (+12.1%).

- Discretionary income erodes on elevated prices. Price increase since the implementation of GST has adversely affected consumption patterns and overall savings. In part, domestic savings declined in the recent month as consumers reach into their savings to pay for daily expenses in order to cope with higher standard of living. Deposit growth for the banking system moderated to 7.7% YoY in May, from 8.4% YoY in April. Deposit growth rate slowed on the back of the decline in both term and savings deposits.

- Higher delinquency in May. More loans were delinquent as gross impaired loans registered an uptick of 2.8% MoM in May. The MoM increase in impairments were due to various loan segments and more significantly for personal use (+10.6% MoM), working capital (+3.0%), and construction (+4.5%).

- Slowdown in private consumption. Aside from the household segment, the softer growth traction in 2Q15 was due to:- (i) real estate; (ii) wholesale, retail, restaurants and hotels; and (iii) education, health & others. While domestic demand will likely be supportive of growth in 2015, the slowdown in the private consumption coupled with weaker-than-expected global demand signals softer GDP growth in 2Q15.

- Manufacturing, financial services and construction stay supportive of growth. Despite the slowdown in several economic segments, loans growth remained steady in May (refer to Chart 2). Total outstanding loans in the financial system stood at 8.9% YoY in May, attributed to stronger growth in manufacturing (+2.0%), financial services (+14.6%) and construction segment (+13.8%).

- A slack on the global front will continue to be a drag on Malaysia’s exports. Cumulatively for April and May, exports and imports had contracted by 7.8% and 7.0% YoY, respectively. Also, trade balance narrowed significantly to RM12.4bil (or -14.0% YoY). Although net trades do not contribute significantly to GDP, the contraction in exports and narrower trade balance will negatively impact overall growth.

Source: AmeSecurities Research - 27 Jul 2015