Analysts’ 2018 growth forecast in line with lower range
KUALA LUMPUR: Analysts’ 5.5 per cent 2018 growth forecast for Malaysia is in line with the lower end of Bank Negara Malaysia’s (BNM) growth range, given that growth has already passed its peak in the second half of 2017 (2H17).
In BNM’s annual report 2017, Malaysia has been projected to remain firmly on a steady growth path to grow by 5.5 per cent to six per cent, compared to 5.9 per cent in 2017.
“Our 2018 forecast of 5.5 per cent growth sits at the lower end of BNM’s growth range of 5.5 to six per cent,” the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said.
“This reflects our belief that growth already passed its peak in the 2H17 and the reason it is still riding high is because there is still no let-up in the growth momentum.”
According to Kenanga Research, this was primarily due to the extension of the tech upcycle and the higher fiscal spending run up to the upcoming 14th General Election (GE14).
BNM’s forecast was more bullish on consumption and export activities, projecting private consumption to grow by 7.2 per cent compared to the research arm’s estimated 6.1 per cent growth.
“However, our forecast assumes higher public expenditure activities of 1.6 per cent compared to BNM’s 0.6 per cent, in light of stronger fiscal push ahead of the upcoming GE14.
“Our exports growth forecast is also lower at 6.9 per cent compared to BNM’s 8.4 per cent as we expect trade to moderate in 2H18 as the tech upcycle is expected to taper and the higher base of last year.”
Kenanga Research was cautious on trade flows moving forward as it was concerned about the impact of Trump administration’s tariffs on trade and the possibility of similar retaliation by other major economies.
AmInvestment Bank Bhd (AmInvestment Bank), which also projected 5.5 per cent growth, believed the potential of businesses will depend on how they are able to tap into digital activities which are gaining traction.
“With the government having instituted initiatives to further develop the digital economy, it will open the door for more opportunities for businesses to go digital in their business model,” the research firm said.
“However, we expect the pace of adoption will vary across the sectors as we can expect some degree of creative disruption to take place.”
On inflation, while BNM expects it to hover between two to three per cent, AmInvestment Bank projected inf lation to average around 2.8 per cent, which was the research firm’s base case while its lower end was 2.5 per cent in 2018.
“Room for inflation to moderate in 2018 are due to a stronger ringgit against the US dollar that will help ease potential upwards pressure from import prices, a stronger ringgit reduces the transfer pricing from producers consumers and high base effect.
“Thus, unlike in 2017 when we projected the economy will register a negative real returns throughout the year, for 2018, we expect the economy will sit in the positive real returns throughout the year.
“We expect the overnight policy rate (OPR) to stay above the inflation level throughout the year.”
While AmInvestment Bank’s base case projection for the OPR was a one rate hike in January 2018 which already materialised, bringing the levels to 3.25 per cent, the research firm has placed a 30 per cent chance of another rate hike either in September or November.
“Much will depend on the pace of rate hikes by the US Fed, to which we are currently looking at three hikes with the fourth hike at a 25 per cent chance occurring in December, the level of domestic inflationary pressure emanating from demand pull and the speed at which BNM will want to normalise the policy rate which we believe is at 3.5 per cent.”