Cautious optimism
Analysts say expectations for second half economic growth should be lowered
KUALA LUMPUR: Following stronger-than-expected second-quarter economic growth, analysts have turned more bullish about the prospects for the full year, with many raising their growth forecasts.
However, they cautioned that gross domestic product (GDP) growth for the second half would increase at a slightly slower pace due to the higher base effect from the same period last year.
Among those warning of a slower growth was CIMB Group Holdings Bhd chairman Datuk Seri Nazir Razak, who said expectations of GDP growth for the period should be lowered.
“I think we should lower our expectations for the second half of the year. Analysts are expecting GDP growth of about 5% for 2017, which by definition would equate to a slower second half,” he told reporters on the sidelines of the Asean roundtable series entitled Deepening capital markets in Asean: Opportunities and challenges here yesterday.
For the second quarter ended June 30, the country’s economy grew at the fastest pace since the first quarter of 2015, with GDP expanding 5.8% which exceeded economists forecast of a 5.4% rise.
During a briefing on the economy’s second-quarter performance last Friday, Bank Negara attributed the growth to private sector-led spending and exports.
It said the growth outlook for the year would be revised higher, given that GDP for the first-half had exceeded the central bank’s forecast of 4.3% to 4.8%.
It expected growth to be above 4.8%, with the new forecast to be released at the tabling of Budget 2018 in late October.
Several research houses have lifted their forecasts for the full year, following the strong second-quarter performance.
Among them are BMI Research, which has raised its 2017 and 2018 real GDP growth forecasts to 5.3% and 5.0% respectively, from 4.7% and 4.6% previously.
It said the continued strong demand for electronics suggested that exports would be the main driver of growth over the coming quarters, while higher oil prices would be supportive of overall growth.
“Domestically, we expect a slight increase in government spending in the run-up to the general election that must be held by August 2018. “To date, the ruling coalition has already announced a slew of measures aimed at boosting support and we expect this to continue as the election draws near, providing a boost to headline growth,” it said.
The research house, which is a unit of Fitch Group, said the risks to its outlook were a sharp slowdown in the Chinese economy, which could weigh on the country’s export sector, especially palm oil, capping growth.
“A considerable rise in political risks in the run-up to the election could also undermine existing confidence in Malaysia’s business environment and weigh on investment,” it said.
AmBank Research, which saw GDP growth for the second quarter beat its estimate of 5.2%, has also revised upwards its forecast for the year.
The research house said it was revising its forecast to between 5.7% and 5.9% from 5.0% previously. following two consecutive quarters of strong growth.
Moving forward, it expected a firm ringgit against the US dollar, stable inflation, a healthy labour market and external demand, as well as import growth to provide the growth momentum in the areas such as con-
struction, exports, services and private consumption, which, in turn, would support manufacturing and also SME activities.
It has also maintained its ringgit outlook against the US dollar at 4.31–4.33 for the full-year average.
CIMB Research said Bank Negara’s growth outlook of “above 4.8%” implied that growth should moderate in the second half to 5.1% year-on-year, as the trade and manufacturing spurt eases.
It added that the expectation was broadly in line with its forecast of a 5.4% growth in 2017.
“With the economy exhibiting resilience, we think monetary policy will remain on an extended pause, and hence reiterate an end2017 overnight policy rate forecast of 3%,” it said in a note.
It, however, cautioned that Malaysia’s external position remained exposed to the volatility of portfolio flows, which it said was susceptible to “turning on a dime” when market sentiment weakens.
Hong Leong Investment Bank Research has maintained its forecast trajectory for a moderate GDP growth of 5.1% in second half as the base effect continues to wear off.
As the GDP growth was within its expectation, the research house has maintained its full-year growth forecast at 5.4%.
On public perception, SocioEconomic Research Centre execu- tive director Lee Heng Guie said the general sentiment among Malaysians remained one of cynicism and indifference, regardless of the country’s strong economic performance.
The centre, which also nudged up its own full-year projection to 5.5% from 5.0%, stressed that there remains a disconnect between the strong GDP growth and the reality on the ground.
“The surprisingly strong headline GDP numbers for two consecutive quarters in a row have masked some disillusionment.
“They (Malaysians) have mixed reactions about the numbers; not so upbeat as they are not feeling the impact of the strong economic growth.
“The sense we get is that the feelgood factors and strong economic growth are not trickled down to the man in the street, as moderate salary increments were offset by the rising cost of living and increasing prices of necessities,” he pointed out.
Lee was of the view that economic expansion would persist, driven by firming domestic demand and exports, but warned that there were risks that required close monitoring.
He said this included the anticipated tighter monetary stance from the US Federal Reserve, unpredictable geopolitical risks, and the rising threat of protectionism by advanced economies against emerging economies.