Economists upgrade Malaysia's GDP growth forecasts after strong Q1

PETALING JAYA: Several economists have revised upwards their forecasts for Malaysia’s 2017 economic growth, given the strong start to the year.

In the first quarter (Q1), the country’s real gross domestic product (GDP) expanded 5.6% year-on-year (y-o-y), mainly due to further recovery in domestic and external sectors. Similarly, on a seasonally adjusted quarter-on-quarter basis, growth was up 1.8%.

HLIB Research now expects the Malaysian economy to grow by 4.9% this year, up from its previous estimate of 4.5%, while AllianceDBS Research upgraded its full-year GDP forecast to 4.8%, from 4.4% previously. They cited the country’s strong performance in the first quarter of this year, which saw further recovery in domestic and external sectors and accelerating private investment, as a reason for the upward revision.

“Q1’17 GDP exceeded our forecast for an expansion of 4.7%, and it is the highest growth recorded since Q1’15,” AllianceDBS Research economist Manokaran Mottain said.

Standard Chartered Bank (StanChart) also raised its forecast for Malaysia’s GDP growth to 4.6% from 4.1% previously, in view of the better-than-expected Q1.

StanChart economist Jonathan Koh said that household spending accounted for 3.6 percentage point of growth, the most in eight quarters, despite falling wage growth, while investment was the second-largest contributor to growth, contributing more strongly than in Q1’16.

Nevertheless, Koh said the research house expects growth to slow in the remainder of the year, as it anticipates unfavourable base effect in the second half (H2) of the year, due to the introduction of consumption-supportive measures in H2 2016.

AllianceDBS Research and HLIB Research said they expect Bank Negara Malaysia would maintain the Overnight Policy Rate at 3% throughout 2017, as the rise in inflation is largely due to cost-push pressures and not demand driven.

AllianceDBS Research kept its inflation forecast at 3.5% for 2017, while HLIB Research maintained its 2017 headline Consumer Price Index forecast at 3.4%.