Malaysia’s 2018 economic growth to be sustainable

KUALA LUMPUR: Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid says the country’s 2018 economic growth is expected to be sustainable, underpinned by private consumption and the new government’s decision to reprioritise mega projects.

He said private consumption, which currently accounts for 55.1 per cent of total gross domestic product (GDP), would be the main growth driver premised on the zero-rating of the Goods and Services Tax (GST) effective June 1.

“The expected implementation of targeted fuel subsidy should also help lift sentiment among households. The level of household debt declined slightly to 84 per cent of GDP in the first quarter 2018 compared with 84.2 per cent in the preceding quarter.

“Therefore, household finances are gradually improving which will set the stage for sustainable consumer spending,” he told Bernama yesterday.

Mohd Afzanizam also said last year’s 5.9 per cent growth indicated that the economy might have been growing above its potential and gave the impression that demand-pull inflation was prevalent.

“However, the recent overnight policy rate (OPR) hike in January should also help the economy grow more sustainably. Investment growth was moderating and the inflation rate had been contained at a low level of 1.8 per cent in the first quarter.

“The government is also pushing to reprioritise mega projects and this will keep the risk of an overheating economy at bay. So, economic growth this year is going to be sustainable,” he said.

Malaysia’s economy grew 5.4 per cent in the first quarter of 2018 (1Q18), underpinned by continued expansion in private sector activity and strong support from net exports.

However, the country’s GDP growth of 5.4 per cent in the 1Q 2018 was slightly below consensus of most analysts as the majority of research firms projected growth to be between 5.6 per cent and 5.7 per cent.

Mohd Afzanizam said Bank Islam, however, maintained its 2018 GDP call at 5.5 per cent and the OPR target level at 3.25 per cent throughout the year.

“We expect the ringgit to range between RM3.85 and RM3.95 against the greenback this year and the inflation rate to rise to 2.5 per cent,” he added.

A Kenanga Investment Bank Bhd analyst said he was expecting 5.7 per cent GDP growth for the first quarter due to better domestic demand and higher public spending prior to the 14th General Election.

“If Malaysia wants to achieve its growth target of between 5.5 per cent and six per cent growth this year, the growth for the second half of the year needs to be higher. At this point, the best we can do is to achieve 5.5 per cent growth in 2018.

“Then again, it all boils down to domestic demand. Perhaps the new government’s move to zero-rate GST can help boost consumption,” he told Bernama.

Another analyst suggested that the lower-than-expected growth was because the first quarter was seasonally a slow quarter.

“It is hard to project GDP growth moving forward as there have been no announcement of a fiscal plan as yet,” she added. — Bernama

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