Malaysia's economy grew 5.9% in 2017 but likely to moderate this year

February 14, 2018 | By | Reply More

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PETALING JAYA: Malaysia’s economy may grow at a slower pace with moderating headline inflation this year, after putting up a stellar performance in 2017 with a full-year gross domestic product (GDP) expansion of 5.9%.

Acknowledging that the 5.9% GDP growth rate in the fourth quarter and the whole of 2017 came as no surprise and was within expectations, Socio-Economic Research Centre (SERC) executive director Lee Heng Guie told SunBiz that growth is expected to recede to 5.1% this year.

He said that while growth for 2017 was underpinned by resilient consumer spending, private investments and strong exports, this year will be more centred on consumer spending and private investments, while exports, which grew by 18.9% last year, are likely to register single-digit increase this year.

“To deliver 5.1% growth for this year, we will have to rely a lot on consumer spending and private investments and to some extent we will still have to be vigilant on global market developments and the global economy. The recent plunge in the US market warrants attention, given market expectations for more aggressive interest rate hikes by the US,” Lee said.

“I believe the underlying growth for Malaysia will still be intact but there is no ground for complacency. I think the government and the central bank will continue to monitor external developments closely,” he added.

Meanwhile, Sunway University Business School’s Professor of Economics Dr Yeah Kim Leng said the 2017 performance was commendable given the soft patch in 2016 (GDP growth of 4.2%) and defied market expectations.

“The strong momentum will continue but because of base effects we are likely to see slightly lower performance,” he said, adding that GDP growth is still likely to be above 5% albeit moderating.

OCBC Bank said growth in the final quarter of 2017 eased only marginally to 5.9%, year on year (yoy, Q3 2017: 6.2%), on top of a larger slowdown in growth in exports at 7.1%, yoy (Q3 2017: 11.8%, yoy) and only a slight moderation in private consumption growth at 6.9%, yoy (Q3 2017: 7.1%, yoy). Private consumption remained the primary anchor of growth for the quarter.

Bank Negara Malaysia (BNM) has projected growth to remain favourable – underpinned by domestic demand as wages and employment continue to grow, with the implementation of new and ongoing infrastructure projects and continued business optimism and favourable domestic and external demand.

OCBC Bank forecasts growth to slow but to remain strong at 5.0% yoy for 2018, with economic performance heavily dependant on the economic performance of Malaysia’s major trading partners.

“Growth in the major trading partners such as China and the European Union is expected to slow. Private consumption would once again be expected to be the primary anchor of growth due to both stable labour market conditions and government income support measures. Private investment is also expected to remain strong due to rising business optimism.

“The risks to this benign scenario though would include an unexpected fall in oil prices, political noise arising from looming elections and lower than expected growth in the major economies,” it told SunBiz.

On another note, headline inflation averaged 3.7% for 2017 compared with the 2.1% in 2016, and BNM expects moderation this year on the back of a “smaller increase in global oil prices and stronger ringgit”.

Lee said headline inflation is still expected to hover around the 3-3.5% range in 2018.

“We still have to watch out for crude oil prices and also the carryover effect of the last few years in terms of cost of living. All these would have an impact on the lower and middle-income households,” he added.

However, Lee said the moderating numbers may not have much effect on sentiments on the ground as prices and cost of living are still high.

Meanwhile, Yeah foresees headline inflation tapering off and reverting to between 2.0% and 2.5% due to stabilising oil prices.

“For this year given that oil prices have stabilised and (with) the disappearance of the base effect we are likely to see inflation tapering off and heading towards the long-term trend of 2%-2.5%,” he said.

The central bank said the trajectory for headline inflation will remain dependent on the trend of global oil prices, which remains highly uncertain.

“Upward pressures from the robust demand condition will be contained by continued spare capacity in the labour market and on-going investment for capacity expansion,” it added.

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