IMF revises Malaysia GDP forecast upwards to 4.8%

By DASHVEENJIT KAUR

The International Monetary Fund (IMF) has revised its 2017 growth forecast for Malaysia upwards to 4.8%, driven by favourable economic data and monetary policy.

IMF economic counsellor and director of research Maurice Obstfeld said favourable economic data and a very steady hand in monetary policy for Malaysia were among the main reasons for the upgrade.

Previously, in its April 2017 World Economic Outlook (WEO), IMF forecast gross domestic product (GDP) growth for Malaysia in 2017 to hit 4.5%.

“Steady-handed monetary policy and successful efforts to increase the sustainability of debt levels, which have been trending downward, are among the reasons.

“Based on our upgrade, we also expect upside risks,” he told reporters in Kuala Lumpur yesterday during the release of the fund’s updated WEO.

For the first-quarter (1Q) of this year, Malaysia’s economy recorded a robust growth of 5.6% in 2017 against 4.1% registered in the same quarter of 2016.

The climb was boosted by strong domestic demand and private expenditure.

Domestic demand increased to 7.7% supported by continued expansion in private sector expenditure, which grew by 8.2% and the turnaround in public sector expenditure.

Private consumption rose 6.6%, while investments grew sharply by 12.9% following continued capital spending in the services and manufacturing sectors.

Bank Negara Malaysia (BNM) governor Datuk Seri Muhammad Ibrahim said during the 1Q GDP performance growth announcement in May that the result was the best since the corresponding quarter of 2015, which saw GDP at 5.8%.

BNM announced it was keeping its full-year growth forecast at 4.3%-4.8%, as it is expecting growth to be sustained from the 1Q this year.

The ringgit has also recovered from being among the weakest emerging Asian currencies in 2016, following measures by the central bank to reduce volatility in the ringgit and domestic foreign-exchange market.

Obstfeld said IMF was optimistic that Malaysia would continue to perform well with the appropriate measures put into place.

On the global front, the fund kept its growth forecasts for the world economy unchanged for this year and next, although it revised growth expectations for the eurozone and China upwards.

On global growth, IMF noted GDP would grow 3.5% in 2017 and 3.6% in 2018 — unchanged from estimates issued in April.

While risks around the global growth forecast appear broadly balanced in the near term, they remain skewed to the downside over the medium term, IMF said in its updated forecast.

IMF shaved its forecasts for US growth to 2.1% for 2017 and 2018, slightly down from projections of 2.3% and 2.5% respectively just three months ago.

The fund reversed previous assumptions that President Donald Trump administration’s planned stimulus measures would boost US growth, largely because no details of those plans have been made public.

Obstfeld said the global economy had been the subject of considerable protectionist rhetoric, such as Trump’s proposed tariff on steel imported from China, but such talk had yet to translate into much action.

“What will happen in the future, we don’t know. These threats are in our downside thinking and they’re not built into our forecast because hopefully they don’t happen, but there are risks,” Obstfeld said.

IMF said growth in the eurozone was expected to be slightly stronger in 2018 and pointed to “solid momentum”.

It upgraded 2017 GDP growth projections for the eurozone to 1.9%, up 0.2 percentage points from April.

IMF said eurozone growth would be slightly stronger at 1.7%, a 0.1 percentage point change from three months ago.

It said the expected higher growth in the eurozone indicated “stronger momentum in domestic demand than previously expected”.

IMF revised down its 2017 forecast for the UK by 0.3 percentage points to 1.7%, citing a slump in economic performance since last year’s vote to
quit the European Union.

It left its 2018 forecast unchanged at 1.5%, adding that it expected slightly higher growth in Japan this year of 1.3% — revised from a forecast of 1.2% in April.

It noted stronger 1Q growth would be buoyed by private consumption, investment and exports. Its forecast for Japan’s 2018 growth was unchanged at 0.6%.

IMF expected stronger growth of 6.7% in 2017 for China, up a 0.1 percentage point from the April forecast.

It said China’s growth would still moderate in 2018 to 6.4%, but noted the estimate was up 0.2 percentage points from the April forecast on expectations that Beijing would maintain high levels of public investment.