Malaysia’s economic growth in 2017 was among the fastest in the region, behind China and the Philippines at 6.9% and 6.7% respectively, The Edge Markets reported.
However, economists believe the gross domestic product (GDP) will not reach the same height this year, with AmBank Group Research saying the economy may have peaked last year. The Malaysian economy expanded 5.9% in 2017, compared with 4.2% in 2016.
The Edge Markets reported MIDF Research and AmBank group as forecasting GDP to average at 5.5% in 2018. The UOB Group and DBS Group Research expect a 5% GDP growth.
The report quoted DBS senior economist Irvin Seah as saying: “We expect GDP growth to moderate to 5% in 2018. High base effects and a tighter monetary regime, both domestically and globally, could well put a lid on growth.”
Socio-economic Research Centre executive director Lee Heng Guie was quoted as saying external factors, such as higher-than-expected interest rate hikes by the US Federal Reserve as well as slower growth in China, could adversely impact the Malaysian economy.
Economists from Ambank and Standard Chartered Bank believe that due to the positive growth outlook, Bank Negara Malaysia (BNM) may raise the overnight policy rate (OPR) by another 25-basis-point (bps) – bringing the OPR to 3.50% by year-end.
“Solid 4Q17 (fourth quarter 2017) growth does not change our view that BNM’s 25bps rate hike in January will be the only one for the year.
“We believe the rate hike, which reverses the 25bps cutback in July 2016, has taken into account the small positive output gap,” The Edge Markets quoted Standard Chartered Bank analysts Jonathan Koh and Edward Lee as saying.
AmBank group chief economist and head of research Anthony Dass was quoted as saying another rate hike in 2018 was possible if the economic data continued to beat expectations.
On Jan 25, BNM raised the OPR by 25 basis points to 3.25%. Dass believes it could “normalise” at around 3.5%.
He added: “Following the rate hike in the month prior, Bank Negara Malaysia is expecting inflationary pressure to ease in 2018, underpinned by stronger ringgit which will mitigate import cost.
“Our base case for the USD/ringgit is 3.88-90 at end-period with the average hovering around 3.92–3.94, there is room for the ringgit to muscle through our base case fair value to reach 3.78-80 with an average of 3.80–3.82, which is our best case.”