RAM Ratings ups Malaysia’s GDP growth to 5.2%

Economists are mostly upgrading their full-year forecast for Malaysia's GDP, but are divided on the next interest rate hike.

KUALA LUMPUR: RAM Rating Services Bhd is revising its gross domestic product (GDP) growth projection up to 5.2% for 2017 from its original expectation of 4.5%. 

The rating agency said after a better-than-expected growth performance of 5.6% in the first quarter of the year, the economic recovery momentum was beginning to show signs of sustainability. 

“Most of this upside stems from a positive turnaround in business sentiment, which has brought about more productive capacity building in the form of machinery and equipment investments.

“A significant rebound in external demand has also supported this robust growth and, in part, has been a key driver of higher business confidence exhibited by export-oriented firms, in line with RAM’s Business Confidence Index findings,” RAM said in a statement. 

RAM has also increased its inflation expectations for 2017 to 3.8% from 3% on the back of a stronger-than-expected oil price recovery momentum in the first quarter and upward stickiness of food prices, especially food away from home. 

“Although the current upward price momentum is still primarily cost-push driven, the acceleration in growth momentum indicates a stronger potential for a higher prevalence of demand-pull inflation going ahead. As such, there is a higher possibility of a 25 basis points hike in the OPR towards the end of the year,” it said.