Standard Chartered Global Research has raised its 2017 GDP growth forecast for Malaysia to 5.4% from 4.6% underpinned by the strong first half performance but it expects growth to moderate in the second half.
It said on Wednesday this reflects strong first half (H1) growth of 5.7%, although it still expects growth to ease in H2.
“Two key areas positively surprised us in the H1 data: (1) the resilience of private consumption, which rose close to 7% on-year; and (2) private investment, which increased 10% on-year,” it said.
StanChart Research said exports picked up in line with its expectations, although higher imports curtailed the contribution from net exports.
“Despite the strong H1 growth, we maintain our view that growth will moderate in H2-2017 and that private consumption will ease,” it said.
The research house also pointed out that real wage growth – which has affected consumption with a lag of about three quarters empirically – was slightly negative in H1.
Private investment had a stellar H1, but loan growth remains subdued. External demand, especially the robust electronics cycle, may keep growth up in H2, but some base effects may kick in during Q4.
“On balance, 2017 is shaping up to be a year of rebound after the muted 4.2% GDP growth in 2016,” it.
StanChart Research said the strong pace of growth in H1 increases the risk of a pick-up in core inflation, and if growth continues to surprise to the upside, expectations for a rate hike may 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 Q1,” it said.
- The Star