Bank Negara Malaysia building in Kuala Lumpur. FAIHAN GHANI/The Star.
KUALA LUMPUR: Standard Chartered Bank (Stanchart) has raised its forecast for Malaysia’s gross domestic product (GDP) growth to 4.1% from 3.8% previously, supported by the recent export recovery.
The global banking group said the export growth was encouraging at end-2016, up 11% year-on-year (yoy) in December from a monthly average of 0.2% in the January-November period of 2016.
“The recovery in commodity prices from year-ago levels should boost growth momentum,” it said in its second quarter Global Focus Report issued in Kuala Lumpur.
The bank also raised its forecast for this year’s current account surplus to 3% of GDP from 2% projected previously.
“Our upward revision reflects rising commodity prices, strong pick-up in electronic exports and a slight expected slowdown in capital- and consumer-good import growth,” it said.
Stanchart said investments were expected to see a slight pick-up this year with little positive impulse for oil and gas investments amid still-cautious sentiment following the previous price collapse.
“The slowdown in property transactions may also suppress investment in structures,” it said.
However, it said, the Government’s infrastructure projects should provide some positive momentum as seen last year whereby government projects awarded rose nearly 19%.
The bank said average headline inflation forecast this year has also been raised to 3.6%, higher than the central bank’s forecast of 2%-3%, due to subsidy rationalisation and higher local fuel prices.
It said household consumption might eased relative to 2016 as an unfavourable base effect was expected to kick in from the second half of this year coupled with the softening of labour market.
“The unemployment rate was relatively high at 3.5% in December last year and employment growth was just 0.6% yoy,” it said.
Stanchart said wage growth was projected to be lower this year as compared to last year weighed by the stronger rise in inflation.
On monetary policy, it said, Bank Negara Malaysia (BNM) was expected to keep it unchanged this year.
“BNM may prefer to take a wait-and-see stance, especially amid increased external market uncertainty and higher inflation,” it said.
It said onshore foreign exchange (FX) trading liquidity was low and any surge in US dollar strength might resulted in higher foreign exchange volatility.
“As such, the central bank may refrain from loosening monetary policy, which could result in increased FX volatility,” it said.
Stanchart said it also expected the ringgit undervaluation to persist for some time amid a strong US dollar and US Federal Reserve’s rate increases.
It said the ringgit’s real effective exchange rate was about 12% below its 10-year average and cheaper than during the Asian financial crisis.
The bank said US dollar-ringgit trading volume has fallen significantly and this might curtail investor interest due to concerns over illiquidity.
“At the same time, we think US dollar-ringgit upside is limited by the improvements in commodity prices and measures to improve US dollar supply via selling of exporters’ proceeds,” it said.
Meanwhile, the bank estimated foreign bond fund positioning would remain underweight and thus should limit the risk of further significant selling unless Malaysia’s index weight fell further from currently about 8%. - Bernama
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