● GDP contraction narrowed further in the 4Q20 (-4.2%; 3Q20: -6.4%), outperforming expectations (KIBB: - 4.7%; consensus: -5.5%)

- Seasonally adjusted QoQ (1.3%; 3Q20: 6.5%): expansion moderated amid easing pent-up demand.

- 2020 (-6.1%; 2019: 2.3%): came in a tad above our forecast of -6.2% (National Economic and Social Development Council: -6.0%; consensus: -6.4%), marking the steepest fall since the Asian Financial Crisis (1998: -7.6%) and recording the second sharpest contraction amongst regional peers.

● The recovery was spearheaded by the domestic demand, specifically from the private sector

- Domestic demand (0.2%; 3Q20: -0.6%):

▪ Private spending: investment contraction eased to a four-quarter low (-3.3%; 3Q20: -10.6%), supported by purchases of machinery & equipment amid prospect of demand recovery. Similarly, consumption activities charted a positive flip (0.9%; 3Q20: -0.6%) on improved purchases of vehicles and household equipment, on the back of fiscal measures. This was also reflective of the rising job placements (84.6k; 3Q20: 73.8k) and a slightly lower unemployment rate (1.86%; 3Q20: 1.93%).

▪ Public spending: in contrast, both public investment (0.6%; 3Q20: 17.6%) and consumption (1.9%; 3Q20: 2.5%) grew at a softer pace on the absence of a pent-up spending following the delayed passing of the 2020 budget bill.

- Net exports (-121.7%; 3Q20: -56.2%):

▪ Exports (-21.4%; 3Q20: -23.3%): the drop lessened on extended recovery of merchandise shipments, primarily agricultural and manufacturing goods, eclipsing a deeper plunge in service receipts, amid prolonged international travel restrictions.

▪ Imports (-7.0%; 3Q20: -19.3%): underpinned by a positive turnaround in imports of raw materials & intermediates, in line with the improved manufacturing activities.

● Sector-wise, the recovery was relatively broad-based, led by agriculture and industrial activities

- Industrial (-2.3%; 3Q20: -5.8%): solely driven by the manufacturing sub-sector (-0.7%; 3Q20: -5.3%), which marked a rebound in the production of raw materials and capital goods, reflecting the technology upcycle and the continued work-from-home trend.

- Services (-5.9%; 3Q20: -7.2%): the recovery was led by wholesale, retail & repair of vehicles (-3.1%; 3Q20: -6.1%) and accommodation & food services (-35.2%; 3Q20: -39.3%), buoyed by domestic tourism incentives (domestic visitors: 45.5m; 3Q20: 32.7m), Special Tourist Visa (STV) programme (10.8k people) and the additional public holidays during the quarter

Source: Kenanga Research - 16 Feb 2021