KUALA LUMPUR: Private investments in Malaysia will likely register respectable growth this year, supported by ongoing large infrastructure projects in the country, according to Malaysian Rating Corp Bhd (MARC).
“Private investment’s contribution to headline growth has risen close to 30 per cent in the first three quarters of 2017, its longest streak since 1H2014.
“The strong upward momentum in private investments is also evidenced by Malaysia’s corporate bond issuance in 2017 which surpassed the RM100 billion mark for the first time since 2012,” MARC chief economist Nor Zahidi Alias said.
In MARC’s 2018 Economic Outlook report released yesterday, he said ongoing projects including the MRT2, LRT3, Pan Borneo Highway, and Menara Warisan will continue to support the upward momentum in investment.
“Given this scenario, we expect private investments to register another respectable growth of 7.3 per cent in 2018. Overall, MARC foresees Malaysia’s real GDP to expand by 5.3 per cent in 2018,” Nor Zahidi said.
Malaysia will also benefit from another year of strong global trade, with MARC forecasting real exports to grow by 4.5 per cent in 2018.
The spillover effect from a strong export performance would also be positive for the domestic economy, with private consumption expected to continue strengthening.
“The strong momentum in consumer spending is also reflected in the amount of Goods and Services Tax (GST) collected in 2017. Going into 2018, we expect private consumption to remain resilient, growing by an average of 7.2 per cent,” he said.
As for inflation, MARC expects both cost and demand pressures to rise and hold the inflation rate at around 3 per cent in 2018. The lag effect from higher pump prices and rising food prices in the past few months will likely persist in 2018.
“There is a possibility of further subsidy rationalisation as the government remains committed to its fiscal consolidation efforts.”
On the local currency, MARC said while Malaysia remains vulnerable to capital outflows due to the large holdings of government securities by foreign investors, several positive factors will likely be supportive of the ringgit against the USD.
They include (1) the expected weakness of the greenback against major currencies in view of a synchronised recovery of the global economy; (2) Malaysia’s commendable export performance; (3) a strong domestic economy, supported by consumer spending and investments and; (4) an expectation of an interest rate hike which will result in net capital inflows into Malaysian shores.
“Having said that however, any policy mishap that could derail the government’s efforts to alleviate current economic imbalances such as fiscal deficits, government indebtedness and a high household leverage position will put the ringgit at risk,” he cautioned.
With the economy likely to achieve a headline GDP growth of over 5 per cent again in 2018, MARC anticipates that Bank Negara Malaysia will raise the Overnight Policy Rate (OPR) by 25 bps-50 bps in 2018.
On the fiscal side, MARC is of the view that the government’s revenue target is achievable if the current uptrend in the global economy is sustained throughout 2018.
“Beyond 2018, however, MARC anticipates that the government would have to find more revenue sources to complement its existing income base as it is risky to depend on oil-related revenue based on current oil market developments,” he said.
/ends