Nation’s economy is expected to grow at 5.3% this year
By P PREM KUMAR / Pic By TMR
Malaysia’s economic expansion is expected to ease this year, after recording an astounding 5.9% gross domestic product (GDP) growth in 2017.
Standard Chartered Global Research (StanChart) said the country’s economy is expected to grow at 5.3% this year, cushioned by strong domestic and external demands.
The report stated that the country’s upcoming 14th General Election could introduce some volatility to quarterly growth this year. The situation, however, will stabilise over the year.
“Private consumption should stay strong, but could ease off the fast 7% pace in 2017, which was the strongest in three years,” the report highlighted.
StanChart also noted that employment growth has recovered from its lows in 2016, as average wage growth looks stable, boosted by lower headline inflation which should support real wage growth this year.
The 1Malaysia People’s Aid payout totalling RM6.6 billion and higher special payments to civil servants and government retirees should also support spending, the report stated.
“Private investment should continue to mitigate softer public investment due to fiscal consolidation,” the report stated.
StanChart said this year, development expenditure is budgeted to remain unchanged from 2017 at RM46 billion, as ongoing large-scale infrastructure projects should continue to support overall investment.
“Loans disbursed to businesses, however, remain moderate, while construction projects awarded in first half of 2017 were low. This may weigh on investment momentum in 2018,” the report read.
Meanwhile, the Malaysian Rating Corp Bhd (MARC) said that stronger commodities prices will augur well to an export-oriented economy such as Malaysia.
The research firm said strong crude oil prices of between US$60 (RM240)-US$70 per barrel and rising liquefied natural gas prices will continue to support commodity exports for Malaysia although palm oil prices have languished by about 29% since its 2017 peak of RM3,348 per tonne.
“All these augur well for the Malaysian economy, whose trade remains above 100% of GDP,” MARC said in a research note.
It added domestically, consumer spending growth will likely sustain above 7% this year, as favourable labour market conditions prevail in the near term.
“A stronger ringgit in 2018 will also act as a boost for consumer spending going forward.
“As for investments, the continuation of major infrastructure projects will likely support its growth. This, however, could be partially offset by rising interest rates in 2018,” MARC highlighted.
MARC said the ringgit will likely remain relatively strong against the greenback as portfolio investors move capital into Malaysian shores to take advantage of the stronger economic growth in 2018.
Inflows are anticipated to rise due to a synchronised recovery in the region, said the research house.
With the economic outlook improving, the government will be afforded significant breathing space as it continues with efforts to strengthen sovereign credit metrics that are of concern to rating agencies.
“The efforts should continue to focus on reducing budget deficits, government debt and contingent liabilities, household debt, as well as further reducing energy subsidies.
“In containing budget deficits, we believe the government will continue to contain operating expenditure (opex), while sustaining the amount spent for development purposes,” said MARC.
The government’s opex has grown by 5.5% on a compound annual growth rate basis from 2010 to 2017, down from 13.4% from 2001-2008.
On benchmark interest rates, StanChart has maintained its view that Bank Negara Malaysia will only hike the Overnight Policy Rate once in January this year.
“Even though fourth-quarter 2017 GDP was strong, this was in line with our expectations and of consensus. Sequential growth, while healthy, is also easing in momentum,” the report stated.
In a related development, Bernama reported that Malaysia is capable of achieving a GDP of RM2 trillion by 2022, if it maintains the annual growth rate of between 5% and 6%.
Chief statistician of the Statistics Department Datuk Seri Dr Mohd Uzir Mahidin said Malaysia is on the right track to achieve the target based on the country’s strong economic position.
“With the ongoing efforts, we hope to achieve RM2 trillion GDP by 2022,” he was quoted as saying.
Mohd Uzir said Malaysia’s GDP rose to RM1.35 trillion in 2017 from RM1.23 trillion in 2016.