RAM Ratings forecasts Malaysia's economic growth to have expanded at a slower pace of 5.3% in the fourth quarter of 2017 while growth for the year would be at 5.8%.
The rating agency said on Monday the slower Q4 growth 6.2% compared with the better-than-anticipated 6.2% in the third quarter last year.
“While we expect the momentum to continue in 2018 amid the resilient growth of both domestic and external demand, we envisage some moderation in the pace following the robust growth last year.
“Under the circumstances, we expect GDP growth to come in at 5.2% this year, after the strong 5.8% clip in 2017,” it said.
Underpinning the GDP growth for 2017 was the export growth, it said, as overall nominal export growth jumped 18.9% compared with only 1.2% of 2016.
Driving the export growth was healthier demand for investment goods and a robust global restocking cycle for electrical and electronic (E&E) items.
Exports of machinery and transport equipment (both investment and E&E exports) account for over 40% of Malaysia’s total exports.
Hence, Malaysia has benefited immensely from this amid the continued broad-based recovery in production and capacity-building activities by industrialised countries.
More importantly, this rebound in external demand has also managed to jump-start the domestic economy.
Bank Negara Malaysia is set to release the Q4 GDP data this Wednesday.
RAM’s head of research Kristina Fong pointed out that as export-oriented industries have performed better and wages and recruitment have been ramped up, a positive spillover effect has flowed through to domestic demand.
The domestic demand powered consumption and investment, she said.
rivate consumption is expected to fully recover from the sluggish couple of years following the implementation of the GST and slack labour conditions, posting a 7.0% growth in 2017.
Private investment is also anticipated to rebound a credible 8.8%, after years of lingering business uncertainties stemming from external and domestic developments.
Painting an optimistic outlook for Malaysia's GDP growth was the recent RAM Business Confidence Index (BCI) where export-oriented firms remain more bullish than their domestic counterparts.
The BCI provides an on-the-ground forward-look of the state of the economy six months down the line.
“Furthermore, recruitment and capacity-expanding activities are set to be maintained, at least in the first half of the year.
“Given this, we expect private consumption and private investment growth to come in at a respective 7.2% and 8.0% in 2018,” it said.
Despite the optimism, there was also guarded conern about some headwinds as international developments remain much in focus, as key determinants of the strength of external demand.
“We believe that a more protectionist stance by some industrialised economies (such as the recent tariff increase for solar panels and their imported components in the US) may affect the pace of exports.
“However, the full extent of this impact may not be immediate, and will hinge on how firms throughout the global supply chain adjust to these new policies given their relative efficiencies and cost considerations,” she said.
Another factor, RAM Ratings pointed out was the momentum and trajectory of global monetary policy tightening, which was also on its risk radar.
Although the normalisation of monetary policy should be viewed as a medium-to-long-term objective, major central banks’ decisions on such policy in the interim could still cause some volatility in the capital markets during the
RAM Ratings will also closely monitor monetary policy decisions and their impact on the real economy.
“On the local front, we do not expect any further increases in the Overnight Policy Rate (OPR) this year. The OPR is envisaged to wrap up 2018 at the existing 3.25%.
“That said, future decisions on the OPR would be data-dependent, balancing the interplay of risks between growth and inflation. We expect inflation to moderate to 2.5% in 2018, from last year’s 3.7%,” she said.