PETALING JAYA: The first quarter is likely to see further improvement in Malaysia’s economy, as growth recovers on higher exports and an improving manufacturing sector.
Bank Negara will be releasing gross domestic product (GDP) data for the first three months of this year today. Economists expect GDP to expand by 4.8% year-on-year for the first quarter compared to the same quarter a year ago.
This will be an improvement from the 4.5% growth in the fourth quarter of 2016 and another sign that the economy continues to recover since growth hit the slowest pace in more than seven years in the second quarter of 2016.
On a quarter-on-quarter comparison, economists expect a GDP growth of 1.2%, slightly lower than the previous quarter’s 1.4%.
The more positive projections come on the heels of rising exports and continued growth in the manufacturing sector, especially in demand for consumer electronics that will continue to improve this year as new smartphone models come out.
AllianceDBS Research chief economist Manokaran Mottain estimates Malaysia’s economy to grow by 4.7%, underpinned by stronger export demand and better performance of the manufacturing sector.
“The manufacturing and services sectors will form the bulk of GDP growth in the first quarter of 2017. Stronger exports will be key in driving the manufacturing sector’s performance.
“Overall, the quarter’s economic expansion will be better both on a year-on-year and quarter-on-quarter basis,” Manokaran told StarBiz.
He added that the research house has upped its full-year GDP growth target for Malaysia from 4.4% to 4.6%.
A number of other economists have also raised their forecast for Malaysia’s economic growth in recent weeks. The government expects Malaysia’s economy to grow by 4% to 5% this year. Last year, GDP grew by 4.2% after growing 5% in 2015 and 6% in 2014.
Inter-Pacific Securities head of research Pong Teng Siew also said key catalysts for growth in the quarter were stronger net exports and a better manufacturing sector, which is driven by improved exports.
However, he also sees the construction sector growth to be slightly lower than the previous quarter, but remaining a significant contributor to the quarter’s GDP growth.
Pong expects GDP to grow by 4.8% in the first quarter and for the full-year, by 4.7% to 4.8%.
According to Bank Negara, growth in the fourth quarter was largely driven by the services sector and private consumption, the mainstays of the economy ever since exports slowed down.
The services sector grew by 5.5% in the fourth quarter underpinned by the growth of wholesale and retail trade, as well as the information and communications sub-segments. Business services also contributed to the sector’s growth resilience.
The support that private consumption has contributed to the economy in recent years has come in the face of lower consumer confidence and rising inflation.
Manokaran expects stronger growth in the first half of the year followed by softer growth in the last six months.
“Moving forward, inflation could be higher due to rising costs. Hence, monetary policies would be ineffective in tackling the higher inflation situation,” he said.
Manokaran does not expect the benchmark overnight policy rate (OPR) to change this year. Bank Negara has kept the OPR at 3% since cutting it by 25 basis points last July.
Manokaran pointed out that consumer spending may have also improved following the better performance of the equity market, a barometer of consumer sentiment.
But Pong remains less hopeful for consumer spending, which could still remain weak, similar to the last quarter of 2016.
“Usually, consumer spending would be higher in the first quarter due to encouraging wage increments. However, since 2016 saw only modest wage growth, consumer spending in the first quarter of 2017 is expected to be largely the same.
“In addition, the recent cutbacks on foreign workers could also have an impact on consumer spending since they too contribute to private spending, to an extent,” he said.
Source : http://www.thestar.com.my/…/further-improvement-likely-in…/…