via The Star: PETALING JAYA: The Malaysian economy grew faster than had been forecast last year, but economists are looking at the high base effect, a slower pace of export growth and external conditions to impact Malaysia’s growth prospects this year.
Overall, economic growth as measured by gross domestic product (GDP) came in at 5.9% in the fourth quarter ended Dec 31, 2017 (4Q17) compared with the same quarter the previous year, and GDP also grew 5.9% for the full year in 2017.
The fourth-quarter and full-year GDP performance was slightly above market expectations. The official prediction was for GDP growth to be between 5.2% and 5.7% in 2017.
Economists told StarBiz that growth would be robust in 2018 although at a slower pace, coming in above 5% after 2017’s growth hit a three-year high. The government expects a growth of 5% to 5.5% this year.
“From the supply side, all economic sectors continued to expand, except for the mining sector. On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 0.9% (3Q17: 1.8%),” it added.
“For the year as a whole, the economy recorded a growth of 5.9%. Headline inflation moderated to 3.5% in the fourth quarter due mainly to lower inflation in the housing, water, electricity and gas and transport categories. For 2017 as a whole, headline inflation averaged at 3.7%,” the central bank said.
It expects growth to remain favourable this year, with domestic demand continuing to be the key driver of growth.
“The expected faster expansion in global growth would continue to benefit Malaysia’s exports, with positive spillovers to the domestic economic activity.
“Headline inflation is expected to moderate in 2018, reflecting a smaller contribution from global cost factors and a stronger ringgit compared to 2017,” it said, adding that upward pressures from robust demand conditions would be contained by continued spare capacity in the labour market and ongoing investment for capacity expansion.
It noted that the trajectory for headline inflation would remain dependent on the trend of global oil prices, which remains highly uncertain.
Malaysia’s GDP release comes on the heels of Singapore’s, which grew 3.6% for the whole of last year with economists expecting growth to remain robust but at a slower pace this year.
CIMB Research economist Michelle Chia forecasts Malaysia’s economy to expand by 5.2% this year, as GDP growth returns to trend growth.
“We are pencilling in slower export growth amid a more demanding base in 2017, a less aggressive pipeline of electronic product launches and a strengthening ringgit.
“Risks to the outlook include global trade disruptions, weaker growth in major economies, geopolitical risks as well as tightening global financial conditions,” she said.
Chia also pointed out that policymakers in the advanced and certain emerging economies have turned hawkish on interest rates. They will look towards raising interest rates as inflationary pressure becomes more evident.
“The key risk here is if policymakers misjudge the strength of the economy or inflationary pressures, the financial imbalances will emerge more intensely than expected,” she added.
Meanwhile, United Overseas Bank (M) Bhd senior economist Julia Goh expects the pace of growth in 2018 to remain robust, given the steady support from domestic growth drivers amid positive spillovers from the external sector.
According to her, Malaysia’s economy will likely strengthen by 5% in 2018.
“With stronger economic growth seen in 2017, the high base effect would weigh on this year’s growth. However, we think new drivers of growth in e-commerce and technology, as well as improving infrastructure, will help drive Malaysia’s growth prospects.
“Data so far continues to suggest that the synchronised global growth story of ‘Goldilocks’ is still largely on track.
“Nevertheless, downside risks should not be understated, as rising interest rates in the United States that could lead to sustained sell-offs in the emerging markets such as Malaysia would dent confidence and growth,” she said. “Goldilocks” refers to the just-right conditions that have and continue to support simultaneous global growth.
Citigroup Inc economist Kit Wei Zheng expects Malaysia’s growth to remain strong in the first-half based on the upward momentum seen in the composite leading indicator.
“While the tech export momentum may moderate from a higher base, private consumption should sustain above a 7% growth at least in the first-half, aided by generous cash transfers in the budget.
Investments should be supported by tighter capacity in manufacturing, and infrastructure and services capex aided by Chinese funding. With the output gap turning positive, perceived price inflation still elevated and wage growth accelerating, demand pull pressures would likely build through 2018,” he said.
Kit also expects another rate hike by Bank Negara in the third quarter, with normalisation of monetary conditions to be complemented by continued ringgit appreciation.
Commenting on the ringgit, Goh pointed out that the local currency remains undervalued and still has room to appreciate.
“The ringgit has strengthened against the US dollar but continues to lag other neighbouring currencies on an effective exchange rate basis.
“In other words, we remain competitive relative to our regional neighbours despite the recent strengthening of the ringgit. Therefore, it should not weigh on Malaysia’s growth outlook,” she said.
Meanwhile, Chia foresees the manufacturing and services sectors to remain as the mainstays of growth in 2018.
However, the strong contribution from the agriculture sector will diminish as the one-off rebound from adverse weather effects fades, moving forward.