OVERVIEW

• GDP growth slowed in 2Q15 to 4.9% from 5.6% but beat the consensus estimate for 4.5% YoY growth and the house estimate of 4.1%
• Although main drag on growth came from a slump in exports and weak domestic demand due to the impact of GST, a surprising rebound in inventories could signal bottoming of growth cycle
• The last time changes in inventories rebounded was in 1Q13 that resulted in sustainable growth averaging 6.0% the following year.
• It is still early days to conclude the economy has turned a full cycle as global rebalancing is still adversely impacting EM economies
• But signs of US growth momentum build up are promising while most major economies including those in Europe and Japan are on the mend.
• Full-year GDP forecast revised up to 5.3% from 5.1% previously as 1H15 growth performance already match our better 2H15 forecast. BNM monetary policy stance expected to stay unchanged.

Real gross domestic product (GDP) increased at a YoY rate of 4.9% in 2Q15, slowing from 5.6% in 1Q15 and 6.0% in 2014 but comfortably beating market estimates. Growth was broadly lower across the major sectors of the economy, with the demand side weaker from an export slump and consumers more hesitant to spend.

Significantly slower growth had been expected for the quarter, with the market pessimistic on growth prospects after trade data showed plunging exports and surveys returned responses showing consumer sentiment at the weakest since 2008. The consensus median in a market poll was looking at YoY growth of 4.5%. The house estimate was a lower 4.1% with high chance of upside.

The large gap between the house estimate and actual numbers was for the most part due to private consumption growth overshooting expectations. This concurred with consumer price data released earlier showing only a relatively small rise in inflation post-GST implementation. 

Source: Kenanga Research - 14 Aug 2015