• GDP growth slowed to 4.7% YoY in 3Q15 (from 4.9% in 2Q15) matching consensus expectations but under the house estimate.
• The services sector was the main drag on growth on the supply side in spite of better manufacturing while final consumption weakened significantly on the demand side despite better exports.
• Both manufacturing and exports gained from a weaker ringgit, which increased export competitiveness but not enough to accelerate economic growth.
• The positive change in inventories seen in 2Q15 turned out to be short-lived and this diminishes the possibility of a growth rebound in the subsequent quarters.
• Slow growth in major world and regional economies suggests that domestic growth will remain subdued.
• Full-year GDP growth forecast revised down to 4.9% from 5.0%-5.3% previously as the current growth moderation trend looks certain to be prolonged on weak demand.
• An increasing probability of slower growth and less volatile foreign exchange markets could lead Bank Negara to adopt easy monetary policy next year. We would hold that thought for now as we are projecting that GDP growth to edge up to 5.1% next year.

Real gross domestic product (GDP) increased at a YoY rate of 4.7% in 3Q15, slowing from 4.9% in 2Q15 and 5.3% in 1H15. The headline growth rate matched consensus expectations but missed the house estimate of 5.1%. Growth was slower in all major sectors of the economy with the exception of manufacturing and construction. The services sector, which makes up more than half of the economy, was the main drag on growth. On the demand side, private consumption growth was the weakest in nearly six years. However, exports recovered from a two-quarter slump as a weaker ringgit improved export competitiveness.

Overall, the data suggests that weak domestic demand continues to be a dampener on economic growth, as seen in other major world and regional economies. The current trend of moderating growth from a 2Q14 peak is expected to extend into 4Q15.

Source: Kenanga Research - 16 Nov 2015