Economic Highlights (Malaysia) - 19/05/2014

Real GDP Strengthened  In The 1Q, Continuing Its Positive Momentum Into 2014

¨      Real GDP strengthened to 6.2% y-o-y in the 1Q, faster than +5.1% recorded in the 4Q of last year, driven by sustained recovery in exports and a stronger expansion in domestic demand. The stronger-than-expected growth was due to the strong performance in construction and manufacturing sectors and aided by a low base effect. This was attributed to a recovery in exports, recording the third successive quarter of growth, after four quarters of decline. This was aided by a sustained increase in private investment and consumer spending, while public consumption picked up during the quarter.

¨      Domestic demand grew at a faster pace in the 1Q, on the back of a resilient private consumption and a sustained increase in private investment, while public consumption picked up its pace during the quarter. Real exports picked up pace to 7.9% y-o-y in the 1Q, following an increase to +5.7% in the 4Q, due to a sustained recovery in global demand for the country’s exports.

¨      On the supply side, both the manufacturing and services sectors grew at a faster pace during the quarter, on the back of a recovery in trade activities, relatively robust investment activities and a sustained increase in domestic demand. These were aided by a strong growth in construction activities, driven by growth in the residential sub-sector. The agriculture sector posted a faster gain as well.

¨      On the external front, the global economy will likely maintain its steady recovery trajectory, supported by accommodative monetary policy with benign inflation. The world economy is on track to chart a stronger growth in 2014 that could lift the country’s exports in the period ahead. As a result, we expect real exports to pick up pace to +4.7% in 2014, despite it slowing to +0.6% in 2013, in tandem with a pick-up in global trade volume.

¨      Although domestic demand will continue to expand at a more moderate pace in 2014, as cost pressure become more intense and macro prudential tightening measures take its toll, it will likely remain resilient and the main anchor of growth during the year. Private investment will likely remain strong, underpinned by sustained flows of FDI investment and investments led by the Government’s initiatives and government-linked companies, despite rising cost pressure. A resilient domestic demand, alongside with a recovery in exports, will likely lift the country’s real GDP growth to 5.4% in 2014, faster than +4.7% in 2013.