Friday, 23 June 2017

(The Star) RAM revises growth outlook

PETALING JAYA: RAM Rating Services Bhd has revised upward Malaysia’s growth outlook for the year on signs of the economy gaining momentum, with businesses spending more and the outlook for exports firming up.

The rating agency’s economist Kristina Fong revised gross domestic product (GDP) projection to 5.2% for this year from the original projection of 4.5%.

“After a better-than-expected growth performance of 5.6% in the first quarter of the year, the economic recovery momentum is beginning to show signs of sustainability,” she said in a statement.

Fong pointed to a positive turnaround in business sentiment, which has brought about more productive capacity building in the form of machinery and equipment investments.

“A significant rebound in external demand has also supported this robust growth and, in part, has been a key driver of higher business confidence exhibited by export-oriented firms, in line with RAM’s Business Confidence Index findings,” she said.

Fong has increased the rating agency’s inflation expectations to 3.8% from 3% on the back of a stronger-than-expected oil price recovery momentum in the first quarter and upward stickiness of food prices, especially food away from home.

“Although the current upward price momentum is still primarily cost-push driven, the acceleration in growth momentum indicates a stronger potential for a higher prevalence of demand-pull inflation going ahead.

“As such, there is a higher possibility of a 25-basis-point hike in the overnight policy rate (OPR) towards the end of the year,” she said. Bank Negara adjusted the OPR with a 25-basis-point cut to 3% last July.

Meanwhile, the Statistics Department’s chief statistician Dr Mohd Uzir Mahidin said in a statement that the leading index (LI), which monitors the country’s economic performance, was 1.4% higher in April at 117.3 points compared to the same month a year ago.

However, compared to March, the LI contracted by 1.3%. “The main components that caused the decrease were real imports of other basic precious and non-ferrous metal (-0.6%), the number of housing units approved (-0.6%) and the number of new companies registered (-0.4%),” he said.

Data also showed that the annual change of the coincident index (CI), which measures current economic activity, continued to increase to 3.8% in April as against 2.9% in the previous month.

However, the CI’s monthly change saw a contraction of 0.2% with the volume index of retail trade (-0.5%) and industrial production index (-0.1%) being the components that contributed to the decrease.

“The annual change of the LI and CI remained favourable in April 2017. Supported by both diffusion indexes above 50%, this indicates that the momentum of the Malaysian economic growth is expected to continue between August and October 2017,” Uzir noted.