GDP forecast upgraded to 5.1%

PETALING JAYA: Owing to strong trade performance, MIDF Research has revised upward Malaysia’s GDP and exports forecasts to 5.1% and 14.5% respectively for 2017, from 4.9% and 8.5% despite the manufacturing Purchasing Managers’ Index (PMI) dropping to a record low.
While the manufacturing PMI went down below the 50-point level to 46.9 points, MIDF Research noted that business optimism has remained solid since May.
The fall in the PMI is mainly due to lower demand and output requirement. However, new orders from abroad continue to rise for the second time in three months. Increases in new export orders also reflect firming global as well as regional demand on Malaysia’s goods.
Looking at other economies, MIDF Research said manufacturing PMI for major and emerging economies show positive signs as most of the PMI stays above the 50-point expansion line.
China’s Caixin Manufacturing recorded a PMI at 50.4 in June, the highest since March whereas Euro Area’s IHS Markit Manufacturing registered at 57.4, the fastest rate of expansion since April 2011.
As an export-reliance economy, MIDF Research said Malaysia will benefit from the improving global and regional demand via exports and investment.
“Therefore, we opine that Malaysia’s industrial production will remain growing at steady pace in June despite of the fall in manufacturing PMI during the month,” it added.
The research house said the strong trade performance for the January-April period gives reasons to believe that the uptrend in global trade activity could sustain for the year. Malaysia’s exports have been recording a double-digit growth for five consecutive months.
MIDF Research said the windfall from surging trade is a boon especially for exports-oriented industries such as electrical and electronics, chemicals, petroleum products and palm oil.
“Hence, there will be a positive trickle-down effect to domestic economic activities via output production, investment, employment, income and consumption.”
Malaysia’s trade balance improved to RM8.75 billion, surpassing the first quarter average of RM6.3 billion, due to steady growth in exports, which expanded by 20.6% year-on-year (y-o-y) in April whereas imports grew by 24.7% y-o-y.
Despite the deceleration in month-on-month growth, MIDF Research said April’s trade figures still indicate the upbeat momentum of Malaysia’s external sector, as well as sustained global demand.
Malaysia’s industrial production index is expected to grow 5.3% in 2017 as industrial production remains stable.
Meanwhile, MIDF Research foresees Malaysia’s inflation rate to moderate moving forward but uncertainty in global oil prices will have a substantial impact on the direction of broader price trends.
Headline inflation rose by 3.9% in May, the lowest in four months. The decline reflects the effects of cost-driven factors such as the tapering off of fuel price.