Stan­Chart: GDP growth to mod­er­ate in H2

The Sun (Malaysia) - - SUNBIZ -

PETALING JAYA: Stan­dard Char­tered (Stan­Chart) Re­search which had re­vised its full-year gross do­mes­tic prod­uct (GDP) growth forecast for Malaysia to 5.4% from 4.6% fol­low­ing a strong first-half eco­nomic per­for­mance, ex­pects growth to mod­er­ate in the sec­ond half of the year.

The re­search house said the strong first-half GDP growth of 5.7% was driven by re­silience in pri­vate con­sump­tion, in­crease in pri­vate in­vest­ment and pick-up in ex­ports.

It, how­ever, ex­pects pri­vate con­sump­tion to ease go­ing for­ward.

“Do­mes­tic spend­ing in the first half was likely boosted by one-off mea­sures, in­clud­ing the min­i­mum wage in­crease and vol­un­tary em­ployee pen­sion con­tri­bu­tion cuts. Higher BR1M (cash as­sis­tance to low­in­come house­holds) may have also helped, but this was likely re­duced by lower sub­si­dies. Con­sump­tion may have been boosted by higher ru­ral in­come due to the com­mod­ity price re­cov­ery.

“We think some base ef­fects of the one­off mea­sures may weigh on con­sump­tion growth in the sec­ond half. Fur­ther­more, the slightly neg­a­tive real wage growth may af­fect con­sump­tion (em­pir­i­cally, we found that real wage growth af­fects pri­vate con­sump­tion with a lag of about three quar­ters),” Stan­Chart said.

Stan­Chart was alarmed by the strong pace of growth which it said could in­crease the risk of a pick-up in core in­fla­tion. Ac­cord­ing to Stan­Chart, if growth con­tin­ues to sur­prise on the up­side, ex­pec­ta­tions for an in­ter­est rate in­crease by the cen­tral bank may also build up.

“In the latest mon­e­tary pol­icy state­ment in July, Bank Ne­gara Malaysia (BNM) noted that un­der­ly­ing in­fla­tion (mea­sured by core in­fla­tion) will be sus­tained by more ro­bust do­mes­tic de­mand but is ex­pected to re­main con­tained.

“We think BNM is com­fort­able with the cur­rent ac­com­moda­tive mon­e­tary pol­icy set­tings and main­tain our view of no change in the pol­icy rate for 2017, while keep­ing a watch­ful eye on core in­fla­tion even as head­line in­fla­tion has eased since its peak in first quar­ter,” the re­search house said.

The ex­port sec­tor is set to be af­fected by un­favourable base ef­fects such as the fad­ing boost from high com­mod­ity prices and mod­er­at­ing ex­ter­nal de­mand.

The soft­en­ing growth in China, which is the pri­mary source of de­mand for ex­ports, may also im­pact ex­port growth.

Stan­Chart also dis­played a cau­tious sen­ti­ment on the sus­te­nance of the mo­men­tum of pri­vate in­vest­ment which was driven by on­go­ing in­fra­struc­ture projects and a pick-up in ex­ter­nal de­mand as well as for­eign di­rect in­vest­ment.

How­ever, loans dis­bursed have eased in the sec­ond quar­ter com­pared with the first, while con­struc­tion projects have fallen steadily over the last few quar­ters.

Pri­vate in­vest­ment were sup­ported by on­go­ing in­fra­struc­ture projects and a pickup in ex­ter­nal de­mand to­gether with for­eign di­rect in­vest­ments, in the first half.

Stan­Chart re­mains some­what cau­tious on the sus­tain­abil­ity of this strong mo­men­tum how­ever, as loans dis­bursed eased in the sec­ond quar­ter from the first, as con­struc­tion projects have fallen steadily over the last few quar­ters.

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