Real GDP growth in 2Q16 slowed to 4.0% YoY matching market and house expectations, marking five consecutive quarters of decelerating growth trend. The rate of GDP growth is now the lowest since 3Q09.
A slump in the plantation sector due to the effects of the El Niño weather phenomenon cut GDP growth by as much as 0.7 percentage points.
Growth of the services (+5.7%), mining (+2.6%) and construction (+8.8%) sectors picked up pace in 2Q16 compared to 1Q16. Manufacturing (4.1%) sector growth was slower compared to the previous quarter.
On the demand side, fast growing imports (+2.0%) on stable exports (+1.0%) weighed down on growth, while aggregate demand (+6.3%) grew at the fastest pace since 1Q15, the preceding quarter before GST was introduced.
Private consumption growth continued to pick up pace for a third consecutive quarter, growing at a stronger than expected 6.3% YoY in 2Q16 from 5.3% YoY in 1Q16.
Investment expenditure (+6.1%) rebounded after growing at the slowest pace in more than six years last quarter thanks to a pick-up in the private segment (+5.6%) and a big turnaround in public investment (+7.5%).
Subdued growth in major world and regional economies and a slump in the plantation sector held back domestic growth in 2Q16 but a cyclical recovery is expected to take place from 3Q16.
We maintain our 2016 GDP growth forecast of 4.3%, a mid-point of our initial forecast of 4.0%-4.5%, as 1H16 growth met our expectations of 4.1% and we continue to anticipate a mild recovery from 3Q16.
As the fundamentals of the Malaysian economy remains intact it reduces the probability that Bank Negara Malaysia would have to cut interest rates in the near term. But BNM would definitely be more cautious amidst the growing uncertainty in the global economy going forward.
Source: Kenanga Research - 15 Aug 2016