Domestic demand, which is projected to strengthen in 2H, will underpin expansion after a stellar 5.7% growth in 1H

By P PREM KUMAR / Pic By ISMAIL CHE RUS

Malaysia will be revising its gross domestic product (GDP) growth target for 2017, after recording a “remarkable” 5.7% growth in the first-half (1H) of the year.

Domestic demand, which is projected to strengthen in the 2H, will underpin the expansion, said Bank Negara Malaysia (BNM) governor Datuk Seri Muhammad Ibrahim.

“The data is looking good, and we will definitely be revising our full-year growth target at above 4.8%,” he told reporters when announcing the country’s second-quarter (2Q) GDP last Friday.

Muhammad said the revised forecast will be revealed by Prime Minister Datuk Seri Mohd Najib Razak during the tabling of Budget 2018 in October.

Malaysia’s economy expanded 5.8% in the 2Q of 2017, the fastest pace in two years, boosted by strong private sector spending and robust export growth.

Growth remained supported by domestic demand, particularly private sector spending, while from the supply side, the improvement was driven by a broad-based expansion across all major sectors.

On a quarter-on-quarter basis, the economy grew 1.3%. Headline inflation, which grew at a slower pace of 4% in the 2Q on lower fuel prices compared to 4.3% in the preceding quarter, is expected to moderate further, assuming lower global oil prices.

“For 2017 as a whole, it (inflation) is expected to average within the forecast range of 3%-4%,” the governor said.

The country’s export sector saw broad-based expansion in the manufacturing and commodity sectors in the 1H of 2017. The governor also noted that global demand and fluctuations in the ringgit’s exchange rate would continue to drive exports in the future.

Muhammad also warned that any international bank, which has an operating licence in Malaysia, may face legal action if it facilitates ringgit futures trading on the Singapore Exchange Ltd (SGX) and the Intercontinental Exchange (ICE).

He said any ringgit transaction in Singapore involving a Malaysian client and a bank licensed in Malaysia will be subjected to Malaysian law.

“The law specifically says that residents, which include individuals and banks operating here, if they engage in any illegal activities in contravention of the Financial Services Act, we will take action,” he said.

Last week, BNM said in a statement that the introduction of ringgit futures contract on the SGX and ICE was inconsistent with Malaysia’s policies.

Muhammad added that the central bank will come out with a framework as soon as possible to reduce the inflation of medical insurance, which now stands at 12%.

He said the current inflation rate is quite high, thus requiring measures to address the issue, with rising medical claims increasing pressure on medical insurance premiums.

“On average, medical insurance claims rise 14% annually,” he said.

Net claims paid to policy-holders increased to RM4.9 billion in 2016 compared to RM4.5 billion in 2015, owing to demand for better healthcare, ageing population and higher prevalence of chronic and lifestyle diseases.

The increase in the cost of drugs and treatments was also among the factors that led to the higher insurance claims.

On the presence of foreign insurance companies in the domestic scene, some of which do not adhere to Malaysia’s ownership laws, Muhammad said the central bank had urged these insurance companies to fulfill their promises.

“That is what we are asking after giving the licence (to insurance companies) to operate in Malaysia…however, this also depends on the size of the company; smaller companies will deal with smaller problems and vice versa,” he said.

It has been reported that foreign insurers in the domestic market have been instructed to find and involve local partners as stipulated in Malaysia’s ownership laws.

Previous reports suggested BNM had issued a directive in April to Tokio Marine Holdings Inc, AIA Group Ltd, Great Eastern Holdings Ltd and Prudential Financial Inc to submit the names of the local partners, who will take over 30% shareholdings in their operations.

Following the liberalisation of foreign ownership, Malaysia requires foreign insurance companies and takaful operators to comply with 30% local participation in their companies and keep 49% to 70% foreign equity in their company.