Malaysian economy likely to grow 4.9 pct in 2017, fixed investment likely to normalize

Following a strong performance in the first half of this year, the Malaysian economy is expected to grow 4.9 percent for the whole of this year, noted ANZ in a research report. However, there is possibility of some softening in the second half of 2017. Household consumption is likely to moderate amidst elevated leverage and a weak labor market. Both imports of consumption goods and loans to households have not been successful in accelerating from the first quarter levels.

Meanwhile, fixed investment ,which was the main support of the overall GDP growth in the first quarter, is also likely to normalize. Particularly, imports of capital goods moderated to 10.7 percent year-on-year in April-May, compared with 41 percent in the first quarter. The current account surplus is likely to further narrow to 2 percent of GDP in this year.

The commodity trade surplus is expected to narrow with prices of palm oil and natural gas weakening. Capital imports would partially counter the rise in manufacturing exports. Services balance would be a further drain, given continued reliance on foreign service providers, especially in the energy sector, stated ANZ.

Inflation possibly peaked in February with the CPI index moderating since. Higher oil prices had been the main reason for the initial rise in inflation and followed a shift in retail gasoline pricing from monthly to weekly intervals. But, the indirect inflationary effect from higher domestic fuel prices has been limited thus far. Core inflation has continued to stay well behaved presumably reflecting the slack capacity in the system and contained wage pressures, added ANZ.

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