Malaysia posts solid Q1 GDP, despite headwinds

Malaysia's Q1 GDP grew 5.6% y/y, better than consensus forecast of 5.5%, with growth remaining strong despite external headwinds from lower commodity prices and weaker growth elsewhere in the region. Despite the upside surprise to Q1 GDP, growth is likely to face stronger headwinds as the year progresses. BNM is expected to keep rates on hold through most of 2015, and only one 25bp rate hike is expected in Q4 15, after the US Federal Reserve starts its own rate hike cycle. The risk is for this rate hike to be pushed out to 2016.

Q1 GDP grew 5.6% y/y, better than consensus forecast of 5.5%, though upside risks to the forecast had been seen following the strong March IP print earlier this week. On a seasonally-adjusted basis, growth slowed to 4.9% q/q saar, down from the exceptionally strong performance of 7.4% in Q4, but nonetheless a robust print, particularly given the external headwinds from lower commodity prices and weaker growth elsewhere in the region. 

The details showed continued robust domestic demand, with a further pickup in private consumption growth to 8.8% y/y, from an already strong 7.8% in Q4 - lifted by a frontloading of consumption ahead of the GST implementation in April. Government spending and investment also picked up, and this helped to offset a fall in exports. By industry, sequential growth was led by services and construction, with manufacturing flat on the quarter, while agriculture and mining were drags on sequential growth. Alongside the Q1 GDP release, the Q1 current account showed a further widening in the surplus to USD2.7bn from USD1.6bn in Q4, notably lower than Q1 14's surplus of USD6.1bn. The overall surplus for 2015 is expected to narrow to USD7.2bn (2.3% of GDP), down from USD15.1bn in 2014 - weighed by lower oil prices, estimates Barclays.