Malaysia economy jumped 5.4%

Thanks to robust and resilient private consumption rising 8.8%, buoyed by tight labor market and strong income growth.

According to OSK DMG, concerns that the weak global environment could hurt Malaysia’s external sector did not pan out with consensus expecting real GDP yoy growth to moderate to 4.6% in 2Q from 4.7% in 1Q (which was revised up to 4.9%).

Here's more from OSK DMG:

Instead, the economy expanded by a faster 5.4% yoy in 2Q, just a tad stronger than our projection of 5.2%, underpinned once again by robust domestic demand. Headline inflation also came in better than expected (consensus: 1.6%; OSK: 1.8%), rising by just 1.4% yoy in Jul, slower than Jun’s 1.6% - the ninth consecutive month of moderation.

As in 1Q, the key driver of growth was domestic demand, which contributed a whopping 11.6 ppts to GDP in 2Q. This was largely due to strong investment expenditure, up 26.1% yoy in 2Q from 16.1% in 1Q, underpinned by ETP and infrastructure projects. Also supporting the strong 2Q growth was resilient private consumption, which rose by 8.8% yoy in 2Q vs. 1Q’s 7.4%, helped by tight labor market and strong income growth.

After a lackluster performance in 1Q, government spending rose by a healthy 9.4% in 2Q (1Q: 7.3%), helped by increased spending on civil servant salaries and generous cash handouts to lower income families. Not surprisingly, the protracted woes in the Eurozone, weak recovery in the US and slowing Chinese economy continued to take their toll on the external sector. Exports slowed to 2.1% yoy in 2Q from 2.8% in 1Q, while imports expanded by a quicker 8.1% yoy in 2Q vs. 6.8% in 1Q. In short, net exports (exports minus imports) subtracted nearly 5.0% ppts from 2Q GDP.