KUALA LUMPUR: AmBank Research has revised downward the country’s gross domestic product’s (GDP) projection to 4.8 per cent to 5.0 per cent this year from 5.3 per cent to 5.6 per cent previously.
AmBank group chief economist and head of research Dr Anthony Dass said the research firm’s GDP revision was inline with the Bank Negara Malaysia’s (BNM) GDP revision of 5.0 per cent for 2018.
He said the below expectation second-quarter (Q2) 2018 GDP of 4.5 per cent year-on-year (YoY) compared its 5.6 per cent YoY was primarily dragged by mining and agricultural on the supply side of the growth model and public investment on the demand side of the growth model.
“But the positive side is that private expenditure performed well that saw aggregate demand grew 5.6 per cent YoY, which fell in line with our expectation in Q2 2018 with net exports up 1.7 per cent YoY,” he told NST Business today.
Anthony added the contribution will continue to come from exports in order for the economy to maintain its growth in 2018, despite the ongoing trade war and the overall global growth still remains intact at its 3.6 per cent projection.
“Besides contribution from domestic demand primarily from private expenditure, it will remain as the main growth driver. Improving business and consumer sentiments will drive private expenditure.
“Hence we expect the monetary policy to remain accommodative, implying the overnight policy rate (OPR) will remain unchanged at 3.25 per cent,” he said.
Meanwhile, Nomura Global Markets Research cautioned a downside risk to its full-year forecast for the country, following the unexpected 4.5 per cent growth in Malaysia’s GDP in Q2 this year.
“We see some downside risks to our full-year GDP growth forecast of 5.1 per cent in 2018, which would represent a slowdown from 5.9 per cent in 2017 and is already below the consensus forecast of 5.3 per cent and close to BNM’s revised forecast of 5.0 per cent from 5.5 per cent to 6.0 per cent previously,” it said.
Nomura said it continues to expect BNM to leave its policy rate unchanged throughout this year and next, citing that the current account surplus narrowed sharply to RM3.9 billion (1.1 per cent of GDP) in Q2 from RM15.0 billion (4.4% per cent) in Q1).
“This was led by a narrower goods trade surplus due to a pick-up in import growth to 4.5 per cent YoY a lower 1.5 per cent in Q1 and a slight slowdown in export growth to 4.0 per cent from 4.2 per cent.
“With foreign direct investment turning into net outflows in Q2, the basic balance surplus narrowed sharply to RM3.2 billion from RM25.7 billion in Q1.
“We see downside risks to our forecast for the current account surplus to rise to 3.7 per cent of GDP in 2018 from 3.0 per cent in 2017,” it noted.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the central bank’s GDP forecast made sense as the bank remains uncertain as to how the trade friction instigated by the US would evolve going forward.
“We noticed global Purchasing Managers Index (PMI) index for the manufacturing has been declining since December last year and the lag effect of monetary tightening in the US would have an impact to the global growth,” he said.
Mohd Afzanizam added the new forecast revision will set the right mind set as to how the government should mobilise its resources especially on development expenditure.
“At the same time, it should convey the right signal to the general public on how they should manage their finances,” he added.
Anthony said the below expectation GDP figure failed to raise major concerns on the overall health of the economy, noting that the post announcement of the figure hardly has any major impact on the ringgit, KLCI and credit default swap as well as bond prices.
“So the lowering of the GDP can be viewed timely, especially b with the ongoing external issues and Malaysia is a trading nation. Hence, we have lowered our 2019 GDP to 4.2 per cent - 4.4 per cent from previously 5.0 per cent.
“Our downwards revision is in tandem with a lower global GDP projection of 3.5 per cent from 3.7 per cent after taking into account over financial and trade tensions,” he said.