Highlights

• Real GDP growth rebounded in 3Q16 GDP to 4.3% yoy, 2Q16: +4.0% yoy), slightly higher than our (+4.2%) and market estimates (+4.1%). Domestic demand continued to expand, albeit slower, but was more than offset by higher net exports. On the supply side, growth was boosted by better performance in most major sectors. On a SA basis, the Malaysian economy grew by +1.5% qoq (2Q16: +0.7% qoq).

• Current account (CA) surplus widened to RM6.0bn or 1.9% of GDP in 3Q16 (2Q16:+RM1.9bn or 0.6% of GDP) due to higher goods account surplus (RM26.5bn; 2Q16:RM19.8bn), offsetting the larger deficit in services (-RM5.1bn; 2Q16: -RM4.6bn) and primary income (-RM10.8bn; 2Q16: -RM8.2bn). We upgrade our 2016 CA surplus to RM15bn following larger than expected 1Q-3Q16 CA surplus (RM12.9bn).

• On expenditure, domestic demand continued to expand, albeit slower at 4.7% yoy (2Q16: +6.3% yoy), driven primarily by private consumption while growth in public sector moderated sharply after growing strongly in the previous quarter. Net exports turned around to provide support to growth (+0.5ppt; -0.6ppt) following larger contraction in imports compared to decline in exports. Meanwhile, stocks continued to pose a drag to the economy, albeit smaller (-0.5ppt; -1.2ppts) i. Private consumption picked up for the fourth consecutive quarter to +6.4% yoy (2Q16: +6.3% yoy), following government support measures and normalisation in spending post-GST effect. Marginal propensity to consume moderated to 0.79 (2Q16: 0.83); higher than 5- year of average of 0.68 (2011-2015). ii. Private investment growth moderated to +4.7% yoy (2Q16: +5.6% yoy) due to slower growth in structure (+5.0% yoy; 2Q16: +5.9% yoy ) and sharp deceleration in machinery & equipment spending (+0.9% yoy; 2Q16: +8.1% yoy) iii. Public consumption grew at a slower pace of +3.1% yoy (2Q16: +6.5% yoy), attributed to lower spending in supplies and services; iv. Public investment deteriorated and reversed to a decline of -3.8% yoy (2Q16: +7.5% yoy) on account of lower spending by Federal Government and public corporations.

• On sectoral front, agriculture sector declined at a slower pace while most major sectors registered faster growth except for construction sector. i. Agriculture sector contracted by a smaller magnitude at -5.9% yoy (2Q16: -7.9% yoy), as the impact of El Nino on CPO production dissipated. This was reflected in slower pace of contraction in palm oil output (-14% yoy; 2Q16: -20.3% yoy);

Source: Hong Leong Investment Bank Research - 14 Nov 2016