StanChart sees growth easing in 2H17

It says real wage growth was slightly negative in 1H17, while private investment is likely to moderate on slow loan growth


Private consumption and private investment in Malaysia are expected to taper off in the second half of this year (2H17) after posting a stronger than expected performance in the first six months, said Standard Chartered Global Research (StanChart).

The global research firm said private consumption may slow marginally as real wage growth was slightly negative in 1H17, while private investment is likely to moderate on slow loan growth.

“We expect private consumption to ease in 2H17 as we have found that real wage growth affects domestic consumption, with a lag of about three quarters.

“Furthermore, the unfavourable base effect from one-off measures that boosted spending in 2H16 and 1H17 may weigh on private consumption in 2H,” the research house said in its latest fourth quarter (4Q) of 2017 report.

StanChart said the robust private investment in the first six months of the year was unexpected.

“Private sector investment contributed 33% of the 5.7% GDP growth in 1H17, likely supported by ongoing infrastructure projects — particularly machinery and equipment investment.

“We expect private investment to moderate, as loans disbursed and capital-goods imports eased in 2Q from 1Q and construction projects have declined over the past few quarters,” it said.

The report said the growth in 2H17 should receive support from external demand, especially the robust electronics cycle, but an unfavourable base effect may come into play in late 4Q.

GDP and Inflation Forecast

For the overall outlook, StanChart maintained its view that growth will ease in the last six months of 2017 from the robust 5.7% recorded in the first six months.

The research firm expects Malaysia’s gross domestic product (GDP) to rebound to 5.4% in 2017, from 4.2% in 2016.

Bank Negara Malaysia expects GDP growth of above 4.8%, which is the upper end of the government’s forecast range of 4.3%-4.8% in 2017.

Additionally, the firm maintains its 2017 current account surplus forecast at 2.4% of GDP.

“The 2Q surplus was supported by a wider goods surplus, and narrower services and income deficits.

“The goods surplus was driven by a significant slowdown in capital-goods import growth to 7.1% year-on- year from 42% in 1Q,” it said.

The report cited the electronics trade surplus, boosted by higher exports, also helped. Meanwhile, the commodities trade surplus narrowed as crude palm oil prices softened in 2Q versus 1Q.

However, StanChart lowered its 2017 average inflation forecast to 3.8% from 4%.

“Seven months of 2017 headline CPI inflation stood at 4%, down from 4.3% in 1Q, as transport inflation eased on the dissipating oil price base effect.

“We expect headline inflation to moderate further in 2H17, especially in 4Q, when an unfavourable base effect will kick in.

“Food prices may also ease on a stronger ringgit — capping imported inflation,” it said.

The firm’s 2017 headline inflation forecast is at the upper end of the government’s projected range of 3%-4%.

Forex Weightings on the Ringgit

StanChart has placed ‘Overweight’ foreign exchange (forex) weightings on the ringgit, saying the currency was among the most undervalued emerging market currencies.

The research firm also highlighted that the overall positioning for the currency among foreign investors remained extremely light.

“More importantly, the ringgit sentiment onshore has improved with better US dollar supply dynamics.

“We have short- and medium-term ‘Overweight’ forex weightings on the ringgit,” it said.

StanChart said the ringgit’s onshore forex turnover was well off its late 2015 lows.

“At the same time, onshore foreign-currency deposits had turned a corner,” it said, adding that the ringgit has also benefited from Malaysia’s strong linkage to the global supply chain amid robust global export volumes.