KUCHING: Malaysia’s exports are expected by RHB Research Institute Sdn Bhd (RHB Research) to remain the main driver of growth for the rest of 2017.
According to RHB Research, Malaysia’s real gross domestic product (GDP) growth picked up significantly in the first quarter of 2017 (1Q17), supported by a stronger recovery in exports and rebound in domestic demand.
As the growth in external activities is expected to be sustainable in the second half of 2017 forecast (2H17F), RHB Research expected economic growth to expand 4.5 per cent year on year (y-o-y) – albeit slower than the 5.2 per cent estimated for 1H17.
For the full-year, the research house forecasted real GDP to grow at a faster pace of 4.8 per cent for 2017.
The research house noted that this is on account of a stronger recovery in exports, which would boost overall economic activity.
“Looking forward, we forecast real exports to grow at a more moderate pace in 2H17F after the nine per cent y-o-y surge in 1H17F.
“For the full-year, real exports are projected to grow at a faster pace of six per cent for 2017,” RHB Research said.
This is on account of strong demand for commodity products, a resilient pick-up in global semiconductor sales and improving overall global trade activity.
RHB Research highlighted that domestic demand is also expected to grow at a resilient pace in 2H17F, albeit slowing from 1H17F.
“This is on account of resilient growth in private consumption on the back of employment gains and a rise in public sector spending due to higher oil revenue,” the research house said.
On the current account surplus in the balance of payments in 2017, it is envisaged by RHB Research to narrow to RM21.4 billion, or 1.6 per cent of GDP.
The research house noted that this is from a surplus of RM29 billion (2.4 per cent of GDP) in 2016.
“This would be due to a narrower merchandise trade surplus on the back of a stronger import growth outlook, as well as a larger deficit in services and income accounts,” it said.
As for the headline inflation rate, it is expected by RHB Research to normalise in 2H17F on the back of lower fuel prices.
“However, it ought to be partly mitigated by the removal of subsidies on administered goods,” the research house said.
On another note, RHB Research said that Bank Negara Malaysia (BNM) is likely to maintain the overnight policy rate (OPR) at the current level of three per cent for the rest of 2017.
The research house projected that the central bank is unlikely to hike rates this year due to the expectation that inflation is to normalise in 2H17F while the ringgit is strengthening.
“Meanwhile, more aggressive rate hikes and plans to reduce BNM’s balance sheet in the US limits the scope for the central bank to cut interest rates,’ it said.