Monday, 2 July 2018

(The Star) Economists bullish on Malaysia Q2 GDP growth

PETALING JAYA: The country’s gross domestic product (GDP) is projected to grow by 5.5% to 5.6% in the second quarter (Q2) from 5.4% in the first quarter of this year, a sign that Malaysia’s economy is gaining momentum under the new Pakatan Harapan government’s economic policy.

Economists are bullish on Q2 after the economy moderated to its slowest pace in four quarters as private investment decelerates, while spending continues to decline. Bank Negara is set to release the Q2 GDP results by August.

GDP growth had slowed to 5.4% in the first quarter of 2018 (1Q18) from 5.9% in the preceding quarter. The central bank at the moment is maintaining its GDP growth target for the full year at 5.5% to 6%.

AmBank Group chief economist Anthony Dass told StarBiz that his projection of 5.5% GDP growth for Q2 was underpinned by several factors.

These include export growth as well as private expenditure on the back of steady private investment and pick-up in private consumption with the removal of the goods and services tax (GST) and its replacement by the sales and services tax in September by the PH government.

“Private consumption will support Q2 GDP growth on the back of improving consumer sentiment after the announcement of the zero GST rate and introduction of fuel subsidies. Besides, rising wages and stable inflation are expected to support household disposable income and hence their purchasing power,” he noted.

OCBC Bank economist Alan Lau is projecting Q2 GDP growth to come in at 5.6% year-on-year (y-o-y) supported by the strengthening of private consumption and GST being zero-rated.

“Furthermore, it doesn’t appear just yet that major civil engineering projects would be immediately shelved. For example, the Finance Minister recently announced that the East Coast Rail Link (ECRL) project would still be carried out.

“However, we will still have to continue to monitor closely for the rest of the year how fiscal decisions evolve and whether they can dampen growth prospects,” he noted.

Meanwhile, Maybank group chief economist Suhaimi Ilias in a report said he expected GDP growth for Q2 to be slower after a moderation of GDP growth for Q1 at 5.4%.

Based on observation, he said y-o-y growth in the monthly index of leading economic indicators leads y-o-y growth in quarterly real GDP by two to three months. “On this basis, our estimated quarterly growth of the leading economic indicators index slowed to 1.2% y-o-y in 2Q18 versus 2.7% y-o-y in 1Q18, suggesting the deceleration in real GDP growth in 4Q17 and 1Q18 is likely to continue in 2Q18,” Suhaimi said.

He pointed out that the group’s current full-year real GDP forecast was at 5.3%, adding that there would be a revision in the forecast as more information and details on the Pakatan government’s economic policies come by.

AmBank’s Dass and OCBC’s Lau at the moment are maintaining their full-year GDP growth forecasts at 5.5%, pending further measures by the PH government.

“At this point, export growth may still come out steady in Q2. There are some positive signs at the moment we can see related to trade. Malaysian trade data shows export growth coming out strong at 14% y-o-y in April, outpacing the import growth at 9.1% y-o-y. However, US China trade tensions started to flare up again towards the end of Q2, and we have to be wary of this situation going forward,” Lau said.

Dass noted that the full-year GDP growth would be driven by private expenditure, ie, consumption and investment and exports projected at 9% y-o-y in tandem with global growth, which is projected at 3.6% and global exports volume at 4.8%.

The economy would also benefit from firmer oil prices at US$73 per barrel and US$78 per barrel for US West Texas Intermediate and Brent crude.

As for inflation, Dass expected inflation in Q2 to be around 1.7% y-o-y with some early benefit from the removal of the GST and introduction of fuel subsidies, adding that he has lowered the 2018 inflation outlook to average around 2.0% to 2.5%.

Headline inflation declined to 1.8% in 1Q18 from 3.5% in the preceding quarter.

Bank Negara said headline inflation for 2018 is projected to average 2% to 3%, down from 3.7% last year, due to a smaller contribution from global cost factors and a stronger ringgit compared to 2017.