GDP growth may be slower in second half
> Impact of base effect and external uncertainties, says BIMB Securities economist
KUALA LUMPUR: Malaysia’s first quarter gross domestic product (GDP) growth that came in at 5.6% exceeded most economists’ projections, with continued momentum expected for the second quarter, but BIMB Securities Research economist Imran Nurginias Ibrahim warned that the economy may see some slowdown in the second half of the year (H2) due to the base effect.
The base effect refers to the consequence of abnormally high or low levels of inflation in a previous month, distorting headline inflation numbers for the most recent month. Headline inflation rose to 4.3% in Q1 due to higher fuel prices.
“Q2 may see a strong growth but H2 might see a slight slowdown because of the base effect and uncertainties on the external side regarding policies and from other economies. Once we’re in H2 we may get a clearer picture and see how it is going to affect the global economy and trade,” Imran told SunBiz, maintaining a 4.5% gross domestic product (GDP) forecast for 2017.
He said Q1 GDP growth surpassed his projection of 4.7%, with the momentum from H216 booked into this year and the quarter.
“For Q1, it has beaten our expectations. Besides economic activity, there’s positive growth from agriculture at 8.3% compared with a negative growth (-2.5%) in Q4. On the demand side, government spending was positive as well, from a negative growth in the previous quarter. All that helped for the economy overall,” Imran explained.
He maintained the forecast that the ringgit will trade around RM4.20-4.30 against the US dollar by year-end and believes that there is still room for the ringgit for strengthen.
Bank Negara Malaysia governor Datuk Muhammad Ibrahim said going forward, the growth of the Malaysian economy is expected to be sustained amid signs of improvement in global economic growth. Growth prospects continue to be supported by domestic demand and further augmented by higher exports.
“Overall the Malaysian economy is on track to achieve a 4.3%-4.8% growth by the end of the year,” Muhammad told a press conference when announcing the Q1 GDP numbers last Friday.
The Malaysian economy grew 5.6% in the first quarter of 2017, lifted by stronger domestic demand, particularly private sector spending.
While inflation increased in Q1, Muhammad said it is expected to moderate from Q2 onwards and to come in at a range of 3%-4% for 2017.
On the ringgit, Bank Negara said most major and regional currencies have recovered in 2017 amid broad weakening of US dollar, but the continued external uncertainties could result in the resurfacing of ringgit volatility. It added that the ringgit and domestic foreign exchange market continued to stabilise and is reflected in the improvements across all liquidity and volatility indicators of the foreign exchange market, following stability measures.