Upside potential to GDP growth outlook

PETALING JAYA: Standard Chartered Research said the pick-up in exports and commodity prices may result in upside risk to its current 2017 growth forecast of 3.8%, despite being cautious on the sustainability of household spending given rising inflation and a potentially softer labour market weighing on real wage growth.
“High household leverage will likely limit the ability of households to borrow and spend, while uncertainty surrounding the financial market may result in more cautious spending,” it said in a research note last Friday.
Standard Chartered Research also highlighted that spending may face a high base effect in the second half of 2017 on last year’s one-off spending-supportive measures, including the second round of minimum wage hikes and voluntary employee contribution cuts.
“We expect export performance to remain strong in the next few months on the recent recovery in commodity and dynamic random-access memory prices. As a result, the economy may benefit from tailwinds in H1’2017 before it has to contend with a less favourable base effect in H2,” it said.
Malaysia’s gross domestic product (GDP) grew 4.5% in Q4, with 4.2% for the whole of 2016.
Hong Leong Investment Bank (HLIB) Research is maintaining 2017 GDP growth forecast at 4.5% given the firmer ending to 2016.
However, it has raised 2017 headline CPI forecast to 3.4% primarily due to higher assumption of pump prices for petrol at RM2.30 per litre for February, which was a result of several refineries shutting down in the Middle East and Asia last month due to fires and other technical problems that led to a decline in supply that affected refined petrol prices.
“While the refinery shut down is expected to be temporary, we still expect inflation to trend higher in Q1’2017 following lower base effect from oil prices in Q1’2016 and current higher oil prices,” it noted.
Given the expectations of resilient economic growth and higher inflation in 2017, HLIB Research expects Bank Negara Malaysia (BNM) to leave the Overnight Policy Rate unchanged at 3% throughout 2017.
“We opine that risk to growth has somewhat receded given firmer commodity outlook and record high infra jobs acting as growth catalyst. As risk to inflation has recently escalated coupled with priority to stabilise ringgit, BNM may opt to stay pat longer despite uncertainty of US trade-related policies,” it said.
On another note, the research house has upgraded the 2017 current account surplus forecast to RM25 billion from RM15 billion following the higher surplus in Q4’2016.
“Our projection of stable CA surplus takes into account higher commodity surplus stemming from increased export volume (CPO rebound, new gas and oil fields) as well as firmer commodity prices,” it said.
Nonetheless, it noted that surplus from manufactured segment is expected to moderate following weaker global trade activity amid rising protectionism policy and threat of adverse trade-related policies in the US.