KUCHING: Malaysia’s real gross domestic product (GDP) growth, sustained at 5.6 per cent year-on-year (y-o-y) in the first quarter of 2015 (1Q15), is likely to slow down in 2Q before stabilising in 3Q and gradually improve in 4Q.
According to RHB Research Institute Sdn Bhd (RHB Research), real GDP growth was sustained at 5.6 per cent y-o-y in 1Q15, from a revised 5.7 per cent in 4Q14 and 5.6 per cent in 3Q. The reading was lower than the research house’s expectation of a six per cent growth in 1Q, due to weaker-than-expected growth in external demand.
“Domestic demand, however, remained the anchor of growth in 1Q, mainly on account of stronger growth in public and private consumption and investment,” it said.
Although real GDP growth held up relatively well in 1Q15 due to pre-goods and services tax (GST) purchases, RHB Research noted that it was likely to see a payback as the growth is envisaged to slow down significantly in 2Q, affected mainly by the implementation of the GST.
The research house further noted that economic growth is expected to stabilise in 3Q, before gradually improving in 4Q.
RHB Research thus kept its 2015 real GDP growth forecast unchanged at five per cent for the time being, compared with +6 per cent in 2014.
“Nonetheless, we do see some downside risks to growth in 2015, if businesses and consumers were to over-react post GST,” it said.
Meanwhile, RHB Research noted that growth in real exports slipped into a decline of 0.6 per cent y-o-y in 1Q15, from 1.9 per cent in 4Q, dragged down by slower growth in global semiconductor sales and weaker trade against its major trade partners, as well as a higher base effect.
It further noted that the drop in export performance was attributed to a decline in exports to Singapore, Malaysia’s largest single-country export destination, along with slower growth in shipments to the US and the eurozone.
On the growth of domestic demand, RHB Research said that it accelerated to 7.6 per cent y-o-y in 1Q, from 6.6 per cent in 4Q, reflecting mainly the pre-GST purchases and spending.
“Private investment picked up further in 1Q, driven mainly by higher capital spending on machinery and equipment.
“Similarly, public investment rebounded into a modest growth in 1Q, following a higher spending on fixed assets by the Federal Government,” it said.
The research house noted that consumer spending also picked up to the strongest pace in 10 quarters, supported by increased wages and stable employment conditions and pre-GST purchases, as consumers front-load purchases of big-ticket items ahead of GST implementation, while festive and pre-GST promotional activities also helped.
“Public consumption, also gained strength on higher emoluments and supplies and services,” it added. On the supply side, RHB Research said that the manufacturing sector grew at a faster pace, supported by domestic-oriented production boosted by pre-GST purchases.
Likewise, the research house noted that construction activities picked up in 1Q, bolstered by construction activities in the residential, nonresidential and civil engineering sub-sectors, as contractors rushed to complete projects ahead of the GST.
It further noted that mining output grew at a stronger pace due to a rebound in the production of crude oil.
“These were, however, partly offset by a slowdown in services activities, dragged down by weaker transport and storage and finance, insurance and real estate and business services sub-sectors,” the research house said.
As for agriculture output, RHB Research noted that it dropped further due to a lower palm oil, forestry and fishing production.