Malaysia’s economy strengthens amid daunting factors
KUALA LUMPUR: The year has been kind to Malaysia as its economy strengthened amid a confluence of daunting domestic and external factors which include the low commodity prices and weak currency.
Most economists have been very cautious over the evolving economic outlook at the outset of the year and this was especially true in the context of rising protectionist policies in the US and populism sentiment globally, which could potentially set the world’s growth into a tailspin, had they materialised.
The ongoing Brexit negotiations and a series of elections in major European countries such as France and Germany threatened to further divide the European Union amid uncertainty in global oil prices as supply glut continues to shape the oil and gas industry.
However, as the year progresses, the US Federal Reserve has been forthcoming in its interest rate decision, resulting in three rate hikes this year.
And the Bank of England also raised its Bank Rate by 25 basis points during its November meeting, signalling that advanced countries have been gradually removing the monetary support as economic growth became more entrenched as evidenced by the decline in unemployment rate and increase in inflationary pressures.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said such dynamics have benefited Asian economies, including Malaysia as exports registered double-digit growth for most of 2017.
“Some industries such as the electrical and electronics, as well as rubber gloves have been upgrading their production facilities and (carrying out) further automation in their production processes.
“This has allowed them to cater for higher order volume from the customers as they gained economies of scale, while competitive exchange rate also helped improve the appeal of Malaysians products,” he told Bernama in an email interview.
Overall, Malaysia’s gross domestic product (GDP) growth picked up speed to reach a twoyear high of 5.6 per cent in the first quarter (1Q) after five consecutive quarters of slow growth since 2Q15. Boosted by strong domestic demand and private expenditure, GDP picked up momentum to record a 5.8 per cent growth in 2Q of this year.
And it went on to achieve a 6.2 per cent growth in 3Q, the highest since 2Q14, as activities in the services and manufacturing sectors picked up with even stronger public spending.
High economic growth achieved in 3Q has prompted the Nether-
Some industries such as the electrical and electronics, as well as rubber gloves have been upgrading their production facilities and (carrying out) further automation in their production processes. Dr Mohd Afzanizam Abdul Rashid, Bank Islam Malaysia Bhd chief economist
land-base ABN AMRO Bank NV to project Malaysia’s full year economic growth of 5.5 per cent and a moderate growth of 5.0 per cent next year.
“We have raised these forecast a couple of times this year. The Malaysian economy clearly did better than expected this year.
“One year ago, we expected the economy to grow by 4.0 per cent in 2017 and 2018,” the bank’s Senior Economist Arjen van Dijkhuizen told Bernama in an interview.
Back home, economists are predicting Bank Negara Malaysia would raise overnight policy rate by another 25 basis points next year as the country’s economy progresses.
Bank Islam’s Mohd Afzanizam said the country’s economy was growing at a respectable pace and might continue to do so next year.
“Therefore, keeping OPR status quo would mean the conduct of monetary policy is less prudent as this would encourage money to flow into unproductive sectors in search for higher yield.
“In other words, it promotes speculative activities if rates are kept low during strong economic growth. Perhaps, the economy needs a slightly higher OPR in order to reward the savers,” he pointed out.
He added that the move could also help drive the ringgit higher as other economies in this region appeared to be taking a different path in terms of monetary policy.
Bank Islam is projecting Malaysia’s 2018 GDP at 5.5 per cent from an estimated 5.8 per cent growth in 2017, mainly driven by domestic spending, especially from consumers and private investment amid stability in global demand.
Meanwhile, the consumer price index (CPI) rose significantly in 2017, driven by an acceleration of economic activity and higher transport prices.
The CPI increased to an average of 4.0 per cent in the January-October period, compared to a full-year average of 2.1 per cent in 2015 and 2016.
“We have seen some moderation from the post-global-financial-crisis peak of 5.1 per cent year-on-year in March, with CPI inflation at 3.7 per cent year-on-year in October.
“We expect headline inflation to moderate further, to an average of 3.0 per cent in 2018. We have pencilled in one policy rate hike by Bank Negara Malaysia in 2018 by 25 basis points, to 3.25 per cent,” said van Dijkhuizen.
There has been a dichotomy between the real economy and consumer sentiment following the persistent rise in the cost of living and expensive house prices, especially with the rising inflation rate in the first 10 months, while the central bank has been consistently highlighting the state of house prices which are generally beyond reach.
Direct cash transfers such as BR1M, the creation of Kedai Rakyat 1Malaysia and the provision of affordable houses through various agencies are among the key measures implemented by the government, while the creation of AKPK by BNM since 2006 is aimed at addressing the level of household indebtedness.
To date, the level of household indebtedness has eased to 84.6 per cent of GDP as of 3Q17 from as high as 89 per cent in 2015.
The ringgit/US dollar is on an appreciating bias as BNM is anticipated to make its move next year in terms of interest rates.
Additionally, the recent communiqué from the US Federal Reserve (Fed) also suggests that the US interest rates rise is likely to be slow and steady as inflation risks remain at bay. — Bernama