KUCHING: Malaysia’s economic outlook is expected to pick-up slightly in 2017 to register a gross domestic product (GDP) growth of 4.4 per cent, driven by exports and household spending.
Firm domestic consumer spending and a weaker ringgit supporting exports could drive a pick-up in growth in 2017.
However, uncertainty over the state of external demand, slowing local business investment and households being at risk of higher interest rates could cause increasing financial stress, according to ICAEW’s latest Economic Insight: South East Asia report.
An anticipated rise in US interest rates and appreciation of the US dollar are expected to lead to a tightening of monetary conditions and triggering capital outflows – conditions that are likely to put stress on Malaysia given its high proportion of foreign bond holdings and current account deficit.
“Globally, 2017 has started on a positive note, however many uncertainties lie ahead. It still remains unclear to what extent the region and Malaysia will be impacted by the US’ strengthening economy and plans for more protectionist policies.
“Overall, prudent spending will be key to negotiating the way ahead,” said Priyanka Kishore, ICAEW economic advisor and Oxford Economics lead economist in a statement yesterday.
The economist forther said the anticipated rise in US interest rates and the appreciation of the US dollar are also expected to constrain recovery in Asia, but not derail it.
Growth within Asia is also expected to be well below its long-term average of around seven per cent with the bulk expected to be generated by domestic demand, in line with a trend observed since 2011.
In South East Asia, the contribution of domestic demand to growth in Asia is expected to rise to 4.2 per cent with a stable overall GDP growth of 4.4 per cent.
With this in plat, ICAEW said the ringgit is expected to hover around 4.4 to 4.5 against the US dollar for most of the year.
Going into 2017, the Malaysian economy continues to face challenges as the possibility of declining global trade and commodity prices threaten to weigh on consumer and business spending.
There is also the risk of accelerated Government spending ahead of the general election, which is expected to take place before August 2018, which could result in an overshoot of the three per cent fiscal deficit target.
“Pressure for an interest rate rise will increase moving forward, with inflation surging on higher fuel and import costs in the second half of 2017. This may prompt Bank Negara Malaysia (BNM) to hike the interest rate sometime in the second half of the year,” it added.
“BNM’s likely hike in the interest rate will weigh on investment within the country, as the overall rise in yields and corporate loan rates wipe out the positive impact from the Central Bank’s policy rate cut last July.”
“Business investment is expected to be relatively sluggish due to increased financing costs and significant uncertainty over the state of external demand, but an improvement in global conditions may support a modest recovery in the second half of 2017.”