Bank Negara may revise 2018 economic growth forecast

KUALA LUMPUR: Bank Negara Malaysia (BNM) said today a revision of its forecast for the country's 2018 gross domestic product (GDP) growth may be on the cards once details of the new set of economic initiatives are released by the Council of Eminent Persons.
"Most of the initiatives are being discussed right now. Once we've got them, we will definitely assess them and if there's a need for a change in the GDP forecast, we will announce it together with the finance minister," BNM governor Tan Sri Muhammad Ibrahim told reporters at a briefing on Malaysia's economic performance in the first quarter of this yea.
He said the central bank has met with the council and has provided some staff on secondment as well as resources.
"The economy and the banking system are very strong at this point in time. So if there's any bold measures that we need to administer, this is the time. This is the window of opportunity we should seize so that our economy will become stronger," he added.
Muhammad announced that Malaysia's economy grew 5.4% year on year in the first quarter ended March 31, 2018 (1Q 2018). The economy grew 1.4% on a quarter-on-quarter seasonally adjusted basis, compared with 1% in the last quarter of 2017.
In 1Q 2018, growth on the demand side was underpinned by private sector spending and strong support from net exports while on the supply side, services and manufacturing sectors remained the key drivers of growth.
According to BNM's quarterly bulletin, private investment moderated to 0.5% from 9.2% in 4Q 2017, weighed down by lower capital spending in structures, particularly in residential and commercial properties, and machinery and equipment.
"We expect that to improve as we move forward. If you look at business sentiment, it is still positive and with the new policies expected and initiatives from the report of the Council of Eminent Persons, we expect business sentiment to improve as we move forward. We have to wait, it's too early for us to make any comments," said Muhammad.
Headline inflation declined to 1.8%, reflecting the smaller contribution of domestic fuel prices due to the smaller increase in global oil prices and a stronger ringgit exchange rate. Core inflation fell to 1.9% in the quarter.
Muhammad said the changes to the Goods and Services Tax (GST) would likely affect inflation but, at this stage, it is too early to calculate the extent of the impact.
"The numbers that we've got for 1Q 2018 are a bit outside our range of 2-3%. With new information coming in, we will look at it again and, if need be, we will revise the inflation rate.
"Our expectation is that those goods and services where GST is imposed, (prices) should decline. It's very important that businesses pass this benefit to consumers at large. On top of that, the authorities should ensure that enforcement is being done to make sure consumers benefit from the reduction of GST from 6% to 0%," he added.
The current account surplus widened to RM15 billion in Q1 2018 or 4.5% of gross national income due to a higher goods surplus and lower services deficit. Muhammad said this was the highest quarterly current account surplus since 2Q 2014 when it reached RM15.3 billion.
The ringgit continued to strengthen during the quarter, outperforming regional currencies and extending gains in 2017. Muhammad said the ringgit has stabilised and returned to pre-election levels, after a few hours of knee-jerk reaction on Monday.
"There's a lot of noise in the short term. In the medium and long term it should be back. The ringgit should reflect economic fundamentals," he said.