Malaysia’s real GDP growth accelerated to 6.2% yoy in 1Q14 (4Q: +5.1% yoy), higher than our and consensus estimate of 5.5% yoy. The fastest growth since 1Q13 was driven by stronger domestic demand (+7.4% yoy) reinforced by improvement in the export sector. Seasonally adjusted basis, real GDP grew by 0.8% qoq (4Q13: +1.9% qoq).

The current account balance improved for the third consecutive quarter to RM19.8bn in 1Q14 (4Q13: RM14.8bn) from a low of RM1.8bn in 2Q13, due mainly to a slightly higher surplus of goods account (RM33.6bn; 4Q13: RM33.3bn) amid lower deficit of services account (-RM2.7bn; 4Q13: -RM4.1bn).

On the expenditure side, domestic demand growth rebounded to grow by 7.4% yoy (4Q13: +6.7% yoy) mainly on account of robust public consumption amid resilient private sector spending. Contribution from net exports turned positive with +1.3ppts contribution to growth from a drag of - 0.6ppt in 4Q13.

Private consumption growth remained strong at 7.1% yoy (4Q13: +7.4% yoy) despite negative impact of subsidy removals and property measures. In nominal terms, consumer spending growth was sustained at even higher level of 10.3% yoy (4Q13: +10.0% yoy).

Public consumption was a strong booster to 1Q14 GDP growth, expanding by 11.5% yoy (4Q13: +5.2% yoy), driven by higher spending on supplies and services.

Growth in gross fixed capital formation remained resilient at 6.3% yoy (4Q13: +6.5% yoy) mainly on strong private investment (+14.1% yoy; 4Q13: +16.6% yoy). In terms of investment by type, higher outlays were mainly observed in the form of structures (+14.7% yoy).

Net exports (in real terms) rebounded to a small contribution on growth (+1.3ppts; 4Q13: -0.6ppt). With better export outlook and stronger CPO export price of ~RM2,700/tonne, we expect net exports will continue to contribute positively to GDP growth throughout 2014.

Sectorial basis, the exceptionally strong GDP growth during the quarter was driven by robust manufacturing, services and construction sectors.

The manufacturing sector strengthened further to 6.8% yoy (4Q13: +5.2% yoy), the fastest growth in three years. The stronger growth was broad-based across all sub-sectors but was driven mainly by robust E&E sector (+12.6% yoy; 4Q13: +9.8% yoy).

Agriculture value added growth improved slightly to 2.3% yoy (4Q13: +0.2% yoy) as turnaround in palm oil output (+1.6% yoy) and marine fishing (+4.3% yoy) more than offset decline in rubber output (-12.1% yoy).

The mining sector continued to contract, albeit at a slower pace of -0.8% yoy (4Q13: -1.2% yoy) due mainly to a smaller contraction in crude oil production.

Source: Hong Leong Investment Bank Research - 19 May 2014