Real GDP Growth Rose by 5.6% in 1Q17, Exceeding Market Expectations

Malaysia’s real GDP growth rose by 5.6% yoy in 1Q17 (4.5% in 4Q16), significantly higher than market expectations of 4.7%. The positive upside surprise was attributed to strong investment activity during the quarter, where growth in gross fixed capital formation rose by 10% yoy, its first double digit growth in four years. Growth in private investment rose sharply by 12.9% yoy in 1Q17, significantly higher than 4.9% yoy in 4Q16, reflecting strong domestic and external demand in the first quarter of this year.

Private Consumption Driven by Employment and Wage Growth

Growth in private consumption rose further by 6.6% yoy in 1Q17, higher than the 6.1% yoy in the previous quarter. On a seasonally adjusted basis, private consumption activity grew by 2.8% qoq in 1Q17 (2% qoq growth in 4Q16), supported by healthy expansion in employment and wage growth, as well as implementation of selected Government measures (such as BRIM cash transfers). We believe that private consumption activity will continue to be supported by steady wage growth and better consumer sentiment in the quarters ahead. Domestic demand rose strongly by 7.7% yoy in 1Q17.

Net Exports Was a Drag on GDP Growth From Higher Imports

On external demand, growth in exports rose by 9.8% yoy in 1Q17, while imports also surged by 12.9% yoy, its strongest yoy level in 27 quarters. Growth in imports also rose sharply from 1.6% yoy in 4Q16 to 12.9% in 1Q17, due to high imports of intermediate goods and imports capital and transport equipment goods (including a floating structure, oil and gas vessels and several aircrafts). As a result, the net exports contribution to GDP fell from 0.5 percentage points in 4Q16 to -1.2% percentage points in 1Q17.

Growth in Manufacturing Sector Rose Sharply in 1Q17

In tandem with steady global economy, growth in manufacturing sector rose sharply higher by 5.6% yoy in 1Q17 (4.7% in 4Q16), supported by strong output of electronics and electrical (E&E) products, as reflected in healthy global demand for semiconductors, as well as higher ouput in domesticoriented industries. Services sector remains stable at 5.8% yoy in 1Q17. Growth in the services sector rose slightly by 5.8% yoy (5.5% in 4Q16), supported by wholesale and retail sub-sector improved in line with higher household spending.

Revising Our Real GDP Growth Forecast to 4.8% in 2017

We believe that the economic growth momentum will continue in the months ahead, partly on the back of strong export performance as well as domestic demand. With strong 1Q17 GDP growth and in view of higher global growth, we are revising upward our real GDP growth forecast to 4.8% for 2017, from our earlier expectation of 4.4% (4.2% in 2016).

Revising Our Current Account Surplus Forecast to RM18.5bn for 2017

While current account surplus moderated in 1Q17, we believe the stabilization in commodity prices and strong exports performance will continue to support the current account surplus going forward. As such, we are also revising our current account surplus forecast from RM15bn previously to RM18.5bn for 2017, on higher net inflows from goods account.

Source: Affin Hwang Research - 22 May 2017