What you need to know about Malaysia's disappointing 4.1% GDP

Everyone in the market was surprised.

According to DBS, first quarter GDP growth figures out yesterday surprised on the downside. The headline number printed 4.1% YoY against a consensus forecast of 5.5%.

Here's more:

In fact, almost everyone in the market was looking at growth pace above the 5% mark. An easing offin governmentspending and investment growth to 0.1% and 13.2% respectively, down from 1.2% and 16% in the previous quarter, have partly contributed to the moderation in growth. This is despite the improvement in private consumerto 7.5%,from 6.2% previously.

However,the main drag came from the externalfront. Though export growth improved with a decline of 0.6%, up from the sharper drop of 1.6%, it wasthe surge in import growth that caused the damage. Import growth expanded by 3.6% as compared to the decline of 0.6% in 4Q12.

Although the headline number did surprise on the downside,the pointto note is that underlying growth fundamentals in Malaysia remain firm. The average growth pace forthe lasttwo quarters is still at a healthy pace of 5.25%. That’s about the medium term potential growth rate ofthe economy.

Moreover, consumption growth remainsstrong, underpinned by a buoyantlabour market.

Investment and governmentspending are expected to ease afterthe election anyway. In fact,the easing of domestic growth is necessary on account of potential inflation risk as well asto maintain fiscalsustainability. Furthermore, the surge in importisreflecting a strong domestic consumption demand as well as possible restocking by manufacturers.

With the above in mind, we are maintaining ourfull year GDP growth forecast of 5.5%, which is currently smacked in the middle ofthe officialforecastrange
of 5-6%.

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