● GDP growth expanded in 1Q22 (5.0% YoY; 4Q21: 3.6%), lower than house estimate but above market expectations (KIBB: 5.7%; consensus: 4.0%)

- The greater expansion was mainly driven by an improvement in the services sector, as well as a return to growth for the agriculture sector, and remained underpinned by manufacturing sector growth despite some moderation. Growth was also attributable to a further expansion in private consumption, as domestic demand began to ramp up with the easing of COVID-19 restriction measures.

- Seasonally adjusted QoQ (3.9%; 4Q21: 4.6%): moderated amid the spread of the Omicron variant, the impact of flash floods in parts of the nation, and due to prolonged global supply chain disruptions, exacerbated by the breakout of conflict between Russia and Ukraine.

● Expansion was driven by growing domestic demand, particular in private consumption, which outweighed export weakness

- Domestic demand (4.4%; 4Q21: 1.9%):

▪ Private spending (4.4%; 4Q21: 2.5%): rose to a three quarter high on a sustained increase in private consumption (5.5%; 4Q21: 3.7%), amid higher spending on necessities and selected discretionary items, with COVID-19 restrictions relaxed on greater national vaccination coverage. However, consumption was likely still hampered by the resurgence of COVID-19 cases amid the Omicron wave. Meanwhile, private investment returned to growth for the first time in three quarters (0.4%; 4Q21: -2.8%), supported by capital spending in the services and manufacturing sectors. Private spending accounted for 3.4 percentage points (ppts) of overall GDP growth (4Q21: 1.8 ppts).

▪ Public spending (4.8%; 4Q21: 0.1%): reached a three quarter high, namely due to an increase in public consumption (6.7%; 4Q21: 1.6%) amid ongoing support from COVID-19 related expenditure. Growth was also lifted by a smaller contraction in public investment (-0.9%; 4Q21: -3.4%), supported by an improvement in General Government’s fixed assets spending. Public spending represented 0.8 ppts of GDP growth (4Q21: 0.03 ppts).

- Net exports (-26.5%; 4Q21: 0.8%): sharp decline as imports growth (3.1%) outpaced a contraction in exports (-1.5%) on a QoQ basis; accounted for -1.5 ppts of overall GDP growth (4Q21: 0.1 ppts).

▪ Exports (7.7%; 4Q21: 13.0%): growth moderated on prolonged global supply chain disruptions, renewed by the spread of the Omicron variant and Russia’s invasion of Ukraine. Nonetheless, external trade remained underpinned by strong E&E exports (27.2%; 4Q21: 20.6%) and robust commodity exports (54.0%; 4Q21: 45.0%).

▪ Imports (8.3%; 4Q21: 14.6%): moderated on lower intermediate imports (29.2%; 4Q21: 36.2%) and capital imports (17.9%; 4Q21: 22.6%), which outweighed an expansion in consumption imports (24.5%; 4Q21: 15.5%) amid faster private consumption growth.

Source: Kenanga Research - 17 May 2022