SERC raises 2018 GDP growth forecast to 5.5%

KUALA LUMPUR: The Socio-Economic Research Centre (SERC) has revised its 2018 gross domestic product (GDP) growth forecast to 5.5% from 5.1% previously, on firmer domestic demand.
“Firstly, why I revised from 5.1% to 5.5%, is mainly to reflect a firmer domestic demand. On the consumption side, I also factored in the budget measures that are likely to see more improvement in spending. I would also expect sentiment on the consumer side to start to slowly improve,” said SERC executive director Lee Heng Guie.
He said it would take a while for the consumer sentiments index (CSI) to cross the 100 point mark (82.6 in Q4 2017) but noted that consumer spending numbers still surprise on the upside every quarter last year despite CSI being below 100.
Lee said consumer spending defied expectations in an environment of rising cost of living and inflation as well as cautious consumer sentiment.
He added that the promises pledged by Barisan Nasional in its manifesto, such as the doubling of 1Malaysia People’s Aid (BR1M) and the one-off increment for civil servants, could eventually translate into higher consumer spending, which SERC has not factored into its revised GDP growth.
Speaking to reporters at SERC’s quarterly economy tracker briefing today, Lee said real GDP growth in the first half of 2018 is estimated to average 5.6% before easing to 5.4% in the second half of 2018.
SERC’s preliminary estimates indicate real GDP to expand by 5.6% in Q1 2018, 5.7% in Q2 2018, 5.5% in Q3 2018 and 5.4% in Q4 2018.
He said domestic demand will continue to be the key driver of growth with sustained private consumption forecasted at 6.9% this year, and continued expansion in private fixed investment forecasted at 8.3% this year.
Meanwhile, business sentiment remained relatively soft in recent quarters and with an imminent 14th General Election, some cautiousness in investors’ sentiment would prevail on lingering uncertainties pertaining to the outcome of the election.
Lee said the external sector is expected to contribute moderately to overall GDP growth as exports are estimated to grow at a moderate pace, partly challenged by high base effects and diminishing exchange rate revaluation gains.
In addition, he said Trump’s trade policy wild card could put global trade growth at risk. SERC projects a 7.5% gross export growth this year.
Inflation rate is expected to range from 2% to 3% this year, after hitting a nine-year high of 3.7% in 2017 since 2008. Overall price level is expected to increase at a slower pace this year, partly due to technical high base effects, reflecting a markedly slowdown in fuel prices that led to lower prices of transportation as well as moderate increase in food prices.
The 2-3% inflation rate is a downward revision from 3-3.5% previously, with potential upside risks being fuel price, utility cost, wage growth and firm demand fueling demand inflation.
SERC’s estimate of the ringgit is RM3.80 to RM3.90 at end-2018 with a fair value of RM3.60 to RM3.70.