M’sian GDP growth seen staying above 5% in 2018

> Government and private sector spending will drive expansion, say economists

KUALA LUMPUR: Economists believe Malaysia’s gross domestic product (GDP) growth will remain above the 5% mark in 2018, driven mainly by private and government sector spending.

UBS Investment Bank associate economist Alice Fulwood, who expects GDP growth to hit 5.5% next year, said the growth trend will mainly be driven by the government’s spending ahead of the general election that is expected to be called in March, as well as major rail projects, including the East Coast Rail Line (ECRL) and Kuala Lumpur-Singapore High Speed Rail (HSR).

“We expect the activities associated with the ECRL, in which construction is expected to start in early 2018, to add 0.3 to 0.5 percentage point to GDP growth. We also expect a similar uplift from the HSR project in 2019,” she said during a conference call.

UBS Investment has GDP growth for 2017 at 6%. The ringgit is expected to hit 4.10 against the dollar by year-end and 3.9 by end of 2018.

Fulwood added that Bank Negara Malaysia (BNM) is expected to increase interest rates twice in 2018, in January and then in the second half of the year.

Asked whether Malaysia’s reserves are insufficient to pay the external long-term and short term debts, she said it depends on the traditional metric on which one looks at, that affects the reserves.

“Yes, Malaysia does look ‘a little under reserved’ but if we look more holistically, actually Malaysia looks more solvent compared with other Southeast Asian counterparts,” she added, noting Malaysia’s external assets exceeded its external liabilities.

The World Bank director for regional partnership Malaysia and Thailand Dr Ulrich Zachau maintained that the pace of GDP growth will continue to be robust at 5.2% and will continue to be underpinned by high levels of private sector expenditure.

The World Bank has once again revised upwards its fullyear GDP growth forecast for Malaysia from 5.2% to 5.8%, steered by strong domestic and external demand.

Zachau said the lift is attributable to economic growth chartered across several areas – in particular private consumption, private investments, and exports.

“Malaysia’s economic growth comes from all sources,” Zachau told reporters at the launch of the World Bank’s Malaysia Economic Monitor report yesterday.

He also opined that Malaysia could achieve its goal of becoming a high-income nation sometime between 2020 and 2024, but there needs to be more inclusive economic growth in relation to the Bottom 40 group – which happens to be affected by inflation the most, as 70% of their income is spent on food and housing, the areas with the highest inflation increase.

“If the economic policies stay the course and with continued prudent sound economic macroeconomic management both on the fiscal and monetary side and continued strong reforms Malaysia will continue to enjoy robust growth,” Zachau added.