Overview

? Extended growth surge. Gross Domestic Product (GDP) growth continued to surge, hitting a 6.2% growth for 3Q17 (2Q17: 5.8%), firmly beating Bloomberg’s median consensus and the house estimates of 5.7% and 5.3% respectively.

? Higher public investments lift domestic demand.

After taking a breather in 2Q17, domestic demand clocked a higher 6.6% growth (2Q17: 5.7%) supported by improved public investments (previously declined).

? …with external demand support. Along with stronger domestic demand, external demand, as represented by net exports, added an additional 0.1 ppts to headline growth even as both exports and imports continued to accelerate.

? Strong sectoral growth led by manufacturing surge. The services (+6.6%) and manufacturing sector (+7.0%) remains the key drivers of 3Q17’s stronger numbers. Standouts within the service sector include sharper wholesale trade growth (amid slower retail trade growth) and sharper growth from government services (in line with higher public expenditure).

? Mining sector a positive surprise. Mining production was a further positive surprise with lower deterioration in crude oil production and higher natural gas production saw mining and quarrying expanding 3.1% (2Q17: 0.2%).

? Higher GDP growth trajectory. Given the expected stronger growth momentum in the 2H17, we are revising our GDP growth forecast for the whole of 2017 to 5.8% from 5.4%. We are also revising our 2018 forecast slightly to 5.1% from 4.9%, to reflect the elevated growth in the 1H18 brought about by the growth momentum in 2H17.

? A rate hike in 1H18? The potential for the strong growth momentum to continue and spill over into next year along with the impact from US Fed rate normalisation exercise was reaffirmed by BNM’s signal of leaning its monetary policy towards tightening. This suggests a possible rate hike in 1H18.

GDP extends accelerating growth streak. Real GDP growth surged 6.2% in 3Q17 (2Q17: 5.8%), easily beating Bloomberg’s median consensus estimate of 5.7% growth (from a range of 4.9-6.3%) and the house estimate of 5.3%. The surge in 3Q17’s growth is the fastest since 2Q14, vindicating the strength of Malaysia’s manufacturing sector which was previously projected to taper towards the second half of the year. On a QoQ basis, GDP expanded 4.0% (2Q17: 2.4 %) though post-seasonal adjustment it expanded by a tamer (but still strong) 1.8% (2Q17: 1.3%).

Resurgence of domestic demand factors. Domestic demand remains the key driver of 3Q17’s growth story, steadily picking up after reporting a more moderate growth in 2Q17 (relative to 1Q17). Both public and private expenditure recorded higher growth amid further support from positive contribution from net export growth. Inventory drawdown likewise played a relatively small contribution to headline growth in this quarter. On a growth contribution basis, domestic demand added 6.1 percentage points (ppts) to headline growth, a significant increase from 5.3 ppts in the 2Q17.

Source: Kenanga Research - 20 Nov 2017