Business, consumer sentiments drop, analysts still positive

KUCHING: Malaysia’s business confidence and consumer sentiments index (BCI and CSI) declined slightly in the third quarter of 2017 (3Q17) but analysts believe that private investments and consumer sentiments would continue a stable growth pace, supported by external and domestic factors.

RHB Research Sdn Bhd (RHB Research) yesterday noted that Malaysian Institute of Economic Research’s (MIER) BCI dropped by 11 points (pts) to 103.1 in 3Q17, from a four-year high of 114.1 in the previous quarter.

This is compared with 112.7 in 1Q while CSI retreated by 3.6pts to 77.1 in 3Q17, from 80.7 in 2Q.

It explained that MIER’s BCI dropped in 3Q17, mainly due to deteriorating domestic and external orders as well as manufacturing sales, despite resilient growth in exports and industrial activities recorded during the July to August period.

Despite the decline in MIER’s BCI, the research team opined, “Moving forward, we expect private investment to sustain a strong pace of 8.6 per cent year-on-year (y-o-y) in 2018, from 8.8 per cent expected in 2017, and compared to 4.3 per cent registered in 2016.”

It added that this was on account of ongoing construction of infrastructure projects, a pick-up in exports, and sustained inflows of foreign direct investment (FDI).

Aside from that, it pointed out that businesses expect brighter prospects for the manufacturing sector in 4Q, with improvements in local and export orders as well as prices.

“However, labour conditions appear to be tepid, with wages expected to decrease further,” it added.

As for the drop in MIER’s CSI, RHB Research noted that this was mainly dragged by a deterioration in current and expected financial conditions, as well as the employment outlook of Malaysian consumers.

“As it stands, the employment index dropped 0.6pts to settle at 75.0 in 3Q17, after increasing by 3.8pts in 2Q,” it said.

Nevertheless, the survey reported that consumers are more ambitious in making home purchases as well as spending on major items, the research tea added.

“This is mostly among middleclass citizens and in urban areas,” it said.

“Despite easing in 3Q17, we expect consumer sentiment to be supported ahead as gains from the external sector continue to spill over to domestic economic activity. At the same time, a mildly expansionary fiscal policy for 2018 would likely provide a strong lift to sentiment. As a whole, we expect growth in private consumption to hold up at 6.3 per cent for 2018, from 6.2 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 cash handouts under the Bantuan Rakyat 1Malaysia ( BR1M) programme, which may be increased under the upcoming Budget 2018,” RHB Research opined.

However, it pointed out that consumers continue to face rising costs of living while remaining in a high level of indebtedness.

Meanwhile, the research team said MIER raised its real GDP growth forecast to 5.4 per cent in 2017, from 4.8 per cent previously and compared to 4.2 per cent in 2016, on the back of stronger external demand that would boost domestic demand.

“This is mostly in line with our expectations of a broader spillover effect of external demand to domestic activity in 2018,” it said.

As for 2018, MIER expects a growth of 4.7 to 5.3 per cent.

Nevertheless, it 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 research team added.