Monday, 16 January 2017

(NST) Surprise on the upside this year

KUALA LUMPUR: The Malaysian economy is likely to surprise on the upside this year after the weaker outlook last year. 

Credit Suisse is confident the macro outlook should improve as commodity prices rebound, benefiting rural households.

“But we remain concerned about potential ringgit volatility due to the United States rate hikes and uncertainty over foreign exchange policies,” it said in a report.

It has maintained its 4.1 per cent growth projection for last year. 

Its economists Dr Santitarn Sathirathai and Michael Wan singled out three key macro themes for Asia — risks from the Donald Trump administration, Asean’s pivot to China and reflation or nominal gross domestic product (GDP) recovery. 

Except for China, exports to the rest of Asia are looking better so far in the first quarter, particularly for commodity exporters. 

Malaysia’s export of palm-based products make up 3.4 per cent of the GDP, compared with four per cent from the export of gas. 

Credit Suisse also expects the current account to improve from 1.9 per cent to 2.3 per cent of GDP. 

On its outlook for the ringgit, Credit Suisse expects the local currency to record a spot price of 4.47 versus the US dollar, rising to 4.50 in three months and 4.55 in 12 months. On its macro themes, Sathirathai and Wan expect the GDP to improve in Asia, mostly due to fiscal policy as well as higher rural income, and inflation rising generally from the low levels. 

Asean’s pivot to China will see the region forging stronger ties with Beijing, resulting in higher foreign direct investment (FDI), improved tourist arrivals to the region, and more support to the region’s GDP growth. 

They also highlighted the risks from the incoming Trump administration in terms of trade and currency rates. 

Meanwhile, the Economist Intelligence Unit (EIU) said Malaysia’s real GDP would likely grow by an average annual rate of 4.5 per cent between this year and 2021. 

This comes on the back of a projected US growth of 2.3 per cent this year (2.1 per cent in 2018), Organisation for Economic Cooperation and Development (1.8 per cent growth this year and 1.7 per cent in 2018) and world (2.5 per cent GDP growth this year and 2.4 per cent in 2018). 

EIU has projected world trade to pick up from 1.7 per cent last year to 2.8 per cent this year and 2.7 per cent next year. 

This year, Malaysia was expected to experience high debt levels and price pressures on household spending, it said. 

Private consumption will likely grow by 5.0 per cent, faster than government consumption of 4.4 per cent. 

On the trade side, exports will probably expand by 2.4 per cent and imports by 2.5 per cent.