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Tuesday, 4 July 2017

(The Star) Stronger economic growth for 2017

KUALA LUMPUR: Economists in the private sector are upgrading their growth predictions for Malaysia, with many expecting the pace of the country’s economic expansion this year to exceed the Government’s own forecast, backed by strong foreign demand and solid domestic demand.

Malaysia reported a 5.6% growth in the first quarter of this year, buoyed by surging demand from overseas for electronic components used to make smartphones and other gadgets.

Speaking at a media briefing yesterday, Nomura Singapore Ltd senior economist for South-East Asia Euben Paracuelles said economic activity in Malaysia during the second half of the year would be driven by export activities, which will continue to be led by the technology sector.

“The outlook for the electronics sector should be relatively robust for the rest of the year,” he said. “We expect the launch of the Apple iPhone 8 to support electronics demand until the third quarter.”

Nomura yesterday revised Malaysia’s 2017 full-year gross domestic product (GDP) forecast to 5.3%, which is higher than last year’s GDP of 4.2% and higher than consensus’ forecast of 4.9% to 5%.

The firm joined other banks in upgrading their growth forecast for Malaysia.

In a global outlook report for the second half of 2017, Oversea-Chinese Banking Corp Ltd or OCBC Bank upgraded Malaysia’s GDP outlook for the year to 4.8% from 4.2%.

“An improvement in the growth outlook removes the need to inject further stimulus, while a stabilising inflation trajectory chips away market talk about having to hike rates to battle price pressures,” said OCBC Bank in the report.

AmInvestment Bank in its recent strategy report, meanwhile, has projected a stronger GDP growth of 5% for 2017.

Paracuelles added that the overall economic outlook for Malaysia was fairly positive for the year, despite the potential election call this year.

Factors that will drive economic growth for Malaysia include exports and spillover to private consumption.

He explained that the effect of a pick-up or extra support in growth from election spending would be minimal this year, should elections be potentially held year-end.

This is because there is not much fiscal space left due to a large fiscal deficit in the first quarter of the year.

Hence, the government is unlikely to engage in any fiscal stimulus this year, as this would further increase fiscal deficit.

However, there is no cause for concern, as the government managed to meet the year-end fiscal deficit target of 3.1% last year despite running a high fiscal deficit in the first half of 2016 via cost-saving initiatives instead of cuts in development expenditure.

“The assumption of the general election’s outcome is that it will probably be the same government with a bigger mandate than what they had in 2013.

“Prime Minister Datuk Seri Najib Tun Razak would also likely maintain the fiscal reforms that he started, such as the goods and services tax and subsidy rationalisation to avoid pressure on the sovereign credit rating.

“With the Opposition relatively fragmented, this would be an advantage to the ruling coalition to gain more seats,” said Paracuelles.

He added that from a foreign investor’s standpoint, a similar coalition running the government would encourage investors that there is not going to be major changes to the reform agenda, infrastructure spending and transformation programme, which will all be intact under Najib’s government.

Paracuelles said the alternative is much more uncertain because there is no track record from the Opposition, and the prospect of the Opposition winning more seats is negative, primarily because the reform measures have become less clear under their watch.

Meanwhile, Nomura’s ringgit forecast against the US dollar has also been upgraded to 4.32 for end-2017 and 4.26 for end-2018.

As for monetary policy, OCBC Bank holds the view that Bank Negara would most likely keep its overnight policy rate unchanged at 3% for the rest of the year.