2017 GDP growth set to top last year’s 4.2%

> Economy expands 5.8% in second quarter on external demand and private investments, beating all expectations

PETALING JAYA: The current upside of the Malaysian economy, which grew 5.8% in the second quarter of 2017, is contributed mainly by the recovery momentum in external demand as well as the boost in private investment supported by the rollout of infrastructure projects and capacity building by firms, said RAM Ratings.

“Business sentiment also remained upbeat as reflected in the RAM Business Confidence Index, which indicates that both corporates and SMEs continued to show positive sentiment for the second half of 2017,” RAM Ratings told SunBiz.

It said the economy in 2017 looks set to outperform the 4.2% GDP growth registered in the previous year. Resilient domestic demand will continue to be the key driver for sustainable growth, with private consumption expecting to maintain a healthy expansion of 6.7% on the back of strengthening labour conditions and fundamental necessities-based consumption.

“GDP further accelerated to a 5.8% growth in Q2 exceeding our projection of 5.2%. RAM Ratings maintains its positive outlook on the Malaysian economy and has revised its full year forecast upwards to 5.4% from our previous expectation of 5.2%, mainly due to the upside experienced in trade and investments,” RAM Ratings said.

JPMorgan chief economist for Asean Ong Sin Beng expects growth will revert to a trend-like 4.5% quarter on quarter (qoq), seasonally adjusted annual rate (saar) in the second half of 2017 (2H17) and this will still leave fullyear growth up 5.4%, maintaining its current forecasts.

He said the rationale for the 2H17 slowdown reflects the expectation that government spending will slow following the 1H17 expansion to meet the 3% fiscal deficit target for this year, following on the heels of an estimated 5% deficit in 1H17.

“Amid this expected fiscal slowdown, there is some hope that infrastructure spending will step up in 2H17 after some softness last quarter and thus could provide some growth offset,” said Ong.

As noted, government consumption surged 65.2% qoq saar in 1Q17 and only pared back 4.1% qoq saar in 2Q17, leaving the fiscal deficit at 5.0% of GDP in 1H17. Thus, some retrenchment in fiscal expenditure is expected in 2H17 to meet the 3% fiscal deficit target.

“Thus, we expect some drag in 2H17 from government spending and thus informs the view of a slower growth profile in 2H17 relative to 1H17. The unknown is the infrastructure pipeline for 2H17 and this could help offset some of the drag from fiscal, Ong said.

He added that despite the solid 1H17 growth outturn, underlying inflation remains benign and this should keep BNM on hold through 2017.

IHS Markit Asia Pacific chief economist Rajiv Biswas said while some pullback in growth momentum is expected in 2H17 after such rapid growth in 1H17, economic growth is still expected to remain robust in 2H17, boosted by continued strong construction spending and rapid growth in manufacturing output.

MIDF Research maintained its GDP growth forecast of 5.1% in 2017 given the upbeat performance of domestic and global economy.

“Besides, improving labour market, continued wage growth and moderating inflation will support and spur the domestic economy. Moving forward, we foresee the economic performance in the second half of 2017 to expand at slower pace,” said MIDF.

Bank Negara Malaysia governor Datuk Muhammad Ibrahim ( pix) said the growth in Q2 was the fastest since the first quarter of 2015.

He said Malaysia’s GDP growth is expected to be above 4.8% in 2017, supported by a more entrenched global economy and positive spillovers to the domestic economy.

“The data looks good,” he said at a press conference last Friday, adding that the government will be announcing a revised GDP growth forecast in Budget 2018, which will be tabled in October.

He said the central bank does not see issues like 1Malaysia Development Bhd affecting growth, explaining that growth numbers are driven by exports and domestic consumption.

On the Royal Commission of Inquiry (RCI) into foreign exchange losses in the 1980s and 1990s, he said: “We’ll not be distracted from discharging our mandate. We’re focused in ensuring our financial and monetary stability ... we will extend full cooperation to the RCI.”