Private consumption and investment to remain resilient in 2018

KUALA LUMPUR: Private consumption and investment are expected to remain resilient this year, supported by strong growth in the external sector, ongoing construction of infrastructure projects, better exports performance, as well as sustained inflows of foreign direct investments (FDI).

In a recent report, RHB Research Sdn Bhd (RHB Research) said: “Moving forward, we expect private investment to be sustained at a strong pace of 8.6 per cent year-on-year (y-o-y) in 2018, albeit moderating from a surge of 9.1 per cent expected in 2017, and compared to 4.3 per cent registered in 2016.

“This is on account of ongoing construction of infrastructure projects, broader spillover from exports to the domestic sector, and sustained inflows of FDI.”

As for consumer sentiments, it expected consumer sentiments to be supported ahead as strong growth

in the external sector would continue to spill over to domestic economic activity.

“At the same time, a mildly expansionary fiscal policy for 2018, as well as potential election spending by the Government, would likely provide a strong lift to sentiment.

“As a whole, we expect growth in private consumption to register a healthy growth of 6.3 per cent for 2018, albeit easing from 6.7 per cent expected in 2017.

“This is expected to be supported by stable wage growth and improving labour market conditions. It would also be further supported by the continued income transfers under the Bantuan Rakyat 1Malaysia (BR1M) programme, as well as the recently-announced two per cent cut in income tax and the one-off bonus payment to public servants and government retirees,” it added.

Nevertheless, it cautioned that consumers could continue to face rising costs of living while being saddled by a high level of indebtedness.

Meanwhile, it noted that Malaysian Institute of Economic Research’s (MIER) business confidence index (BCI) decreased by 1.6pts to 101.5 in during the quarter, from 103.1 in the preceding quarter.

On the flip side, it pointed out that its consumer sentiment index picked up to its strongest level in three years, amid an improvement in the outlook on financial and employment expectations.

The research team noted that MIER’s consumer sentiment index (CSI) gained by 5.5pts to 82.6 in 4Q17.

RHB Research added that MIER raised its real GDP growth forecast to 5.4 per cent in 2018, from 4.7 to 5.3 per cet previously.

“However, this was lower compared to 5.6 per cent expected in 2017,” it said.

“MIER expects domestic demand to be the main driver of the economy, supported by continued growth in external demand.

“This is mostly in line with our expectation of a broader spillover effect of external demand to domestic activity in 2018.

“Nevertheless, MIER remains cautious and acknowledges risks to its forecasts – namely the unexpectedly aggressive monetary policy in the US, the return of the protectionism sentiment, and a slowdown in China and other emerging economies.

“The general election in Malaysia this year is also a risk considered by MIER to its Malaysia GDP growth outlook,” RHB Research commented.