- GDP slows in 2Q15 on slower domestic demand. GDP advanced at a slower pace of 4.9% YoY in 2Q15, owing to the slowdown in domestic demand (1Q15: +5.6%). All segments of aggregate domestic demand including public spending, private consumption expenditure and investment expenditure slowed during the quarter. In part, private consumption grew at a softer pace of 6.4% due to GST, compared to +8.8% in 1Q15.

- Total investment slowed drastically in 2Q15. The major factor of the drag in GDP is the drastic slowdown in investments. Total investment registered a marginal growth of 0.5% YoY in 2Q15 vs. a healthy +7.9% in 1Q15. Mainly, private sector investment slowed markedly to 3.9% (1Q15: +11.7% YoY), or contributed 73.4% to total investment. Meanwhile, public investment contracted by 8.0%, from +0.4% in 1Q15. In terms of segment, the slack in investment was due to the deceleration in Machinery & Equipment to -7.5% in 2Q15, from +5.8% in 1Q15.

- Contraction in exports and lower trade balance. Trade balance registered a surplus of RM21.2bil in 2Q15, which is lower compared to RM23.3bil in 1Q15. However, net exports fell by 10.5% YoY (or -RM2.5bil YoY). Exports dropped further to -3.7%, while imports posted -2.8% in 2Q15. In terms of contribution to GDP, net exports accounted for 8.1% of real GDP.

- Growth rates were slower for all segments in the supply side except agriculture. On the supply side, growth rates were slower for all segments except agriculture, which advanced to +4.6% in 2Q15 vs. -4.7% in 1Q15. The slowdown were notable for the Services segment (which moderate to +5.0% YoY), Mining & Quarrying (+6.0%), Manufacturing (+4.2%), and Construction (+5.6%).

- Domestic demand is expected to remain soft in 2H15. In 1H15, GDP advanced by 5.3% YTD vs. 6.4% in 1H14. Private consumption expenditure could remain slow in 2H15 on the back of higher prices. Retail spending probably stayed weak, which mitigated the potential improvement in terms of international trade. Aside from that, slower-than-expected investment growth and private sector spending amid weak sentiments will be a drag on the economy in 2015. We are tweaking our fullyear GDP projection lower to 4.9% on the potential slowdown in the domestic front.

Source: AmeSecurities Research - 14 Aug 2015