2016 GDP growth forecast for Malaysia intact

PETALING JAYA: Economists are maintaining Malaysia’s gross domestic product (GDP) growth forecast at 4.2% for 2016 despite the slowdown in the country’s industrial production index (IPI) to 4.1% year-on-year in July, from 5.3% year-on-year in June.
“Even though July’s IPI and export growth reflected a weak start to 2H16, we believe this may be transitory, partially distorted by seasonal factors (Hari Raya season). Based on preliminary data, with slower growth likely in both industrial and manufacturing production in Q3’16, we estimate real GDP growth of between 4.2%-4.3% year-on-year (4.0% in Q2’16), supported by domestic demand, especially private consumption and investment during the quarter,” Affin Hwang Capital said in a report yesterday.
It believes downside risks from the uncertainty over Brexit will only be more material in 2017. As such, it continues to expect a gradual improvement in export growth in the months ahead, translating into better performances in both manufacturing and electricity production. For 2016, it expects the country’s real GDP growth to expand by 4.2%, slower than 5.0% in 2015.
“On the domestic front, we expect Malaysia’s private consumption to remain resilient driven by improvement in income growth, which should be supported by upward adjustment in minimum wages for the private and public sector, coupled with BR1M cash transfers to lower income groups.”
On-going implementation of infrastructure projects and capital spending in major sectors (manufacturing and services) should also be supportive of economic growth in 2H16, Affin Hwang said.
Meanwhile, HLIB Research said the near-term outlook for IPI remains challenging. Forward indicators such as intermediate imports, global purchasing managers’ index, world chip sales, and business confidence continued to reflect subdued global economic conditions.
“We maintain our 2016 full-year GDP growth forecast at 4.2%. We still expect GDP growth to increase in 2H 2016 as measures to boost household disposable income (EPF reduction, government salary increase, minimum wage hike) take effect while infrastructure projects pick up momentum. An expected recovery in crude palm oil output in 2H (fading of El-Nino effect) would also help to support GDP growth,” said HLIB.
The research house retained its forecast for Bank Negara Malaysia (BNM) to maintain policy rate at 3.00% till year-end due to expectations of stronger growth in 2H 2016. However, it said there is still a risk that external sector would weigh on overall GDP growth leading BNM to reduce its policy interest rate by another 25 bps in the November 2016 monetary policy committee meeting.