MARKET DEVELOPMENT
M’sia Seen Growing 5% in 2015 Despite Uncertainties
M’sia Seen Growing 5% in 2015 Despite Uncertainties
09/07/2015 (The Star) - Despite rising external uncertainties, Malaysia is expected to grow at a moderate pace of 5% in 2015, after taking into account the strong first quarter expansion and expected gradual recovery from the goods and services tax (GST).
Hong Leong Investment Bank (HLIB) Research said modest recovery is seen in the second half after a pull-back in the second quarter due to the GST imposition.
It added that the ringgit was expected to remain under pressure, as negative sentiment overshadows fundamentals amid a volatile global financial market and unfavourable domestic newsflows.
“After a strong start of 5.6% year-on-year (y-o-y) in the first quarter, a growth pullback in the second quarter (HLIB Research estimate of 4.3% y-o-y) due to the GST imposition would be followed by a modest recovery into the third quarter and a pick-up towards the fourth quarter.
“Meanwhile, the external sector is projected to remain subdued with a net drag on growth affected by soft commodity prices and weak China demand.
“We maintain our 2015 full-year gross domestic product (GDP) growth forecast at 5% after taking into account the strong first-quarter expansion and an expected gradual recovery from the GST,” HLIB Research said in a report.
In addition, the research house said private consumption growth was projected to gradually return to the historical trend of 6%-7% in fourth quarter 2015, as the GST impact was offset by a still steady job market and mitigating measures.
HLIB Research said the present trend of retrenchment was largely one-off and temporary, as it reflected mainly corporations adjusting to business cycles (ie, oil and gas) and cost reduction.
“There is still no sign of widespread layoffs due to company closures in key sectors.
As at April 2015, both the unemployment rate and the labour force participation rate had remained steady at 3% and 67.7%, respectively,” it added.
The ongoing projects (ie, MRT and LRT works, projects carried over from the Tenth Malaysia Plan and property construction) are sufficient to maintain the pace of investment growth this year.
Sector-wise, HLIB Research said most industries were expected to perform better in the second half of 2015, mainly reflecting recovery from the GST effect and the east coast flood impact late last year.
The services sector, the key driver of overall GDP growth, is expected to remain resilient, thanks to the post-GST growth recovery in consumption-related components and better tourism contribution.
HLIB Research said notwithstanding matured oil palm-planted areas and incipient signs of El Nino, it expects the agriculture sector to rebound to a small positive growth after contracting in the first half of 2015, mainly credited to a normalisation outcome from the massive flood that occurred late last year.
HLIB Research expects the Government to expedite its 2015 development expenditure of RM48.5bil in the second half of 2015, given a slow start of RM8bil spent in first-quarter 2015.
The research house has raised its forecast of the current account surplus to RM28bil in 2015, given a higher oil price assumption of US$60 per barrel, the weaker ringgit, the higher commodity export volume and the lower import elasticity.
Despite the noise on fiscal flexibility, HLIB Research opined that the fiscal deficit of 3.2% of GDP was achievable, supported by an on-target GST collection, the scrapping of the fuel subsidy scheme and rationalisation in expenses.
Higher oil prices may provide an upside surprise to oil-related revenue.
“We maintain our inflation forecast at 2.5% for 2015, with a peak in third quarter 2015.
“The lower-than-expected GST impact is offset by higher fuel pump prices and potential imported inflation via the weaker ringgit,” HLIB Research said.
The research house expects Bank Negara to leave its overnight policy rate unchanged at 3.25% until end-2015.
Domestically, growth and inflation outlook are expected to stay within the central bank’s expected range of 4.5%-5.5% and 2%-3%, respectively, this year.
Hong Leong Investment Bank (HLIB) Research said modest recovery is seen in the second half after a pull-back in the second quarter due to the GST imposition.
It added that the ringgit was expected to remain under pressure, as negative sentiment overshadows fundamentals amid a volatile global financial market and unfavourable domestic newsflows.
“After a strong start of 5.6% year-on-year (y-o-y) in the first quarter, a growth pullback in the second quarter (HLIB Research estimate of 4.3% y-o-y) due to the GST imposition would be followed by a modest recovery into the third quarter and a pick-up towards the fourth quarter.
“Meanwhile, the external sector is projected to remain subdued with a net drag on growth affected by soft commodity prices and weak China demand.
“We maintain our 2015 full-year gross domestic product (GDP) growth forecast at 5% after taking into account the strong first-quarter expansion and an expected gradual recovery from the GST,” HLIB Research said in a report.
In addition, the research house said private consumption growth was projected to gradually return to the historical trend of 6%-7% in fourth quarter 2015, as the GST impact was offset by a still steady job market and mitigating measures.
HLIB Research said the present trend of retrenchment was largely one-off and temporary, as it reflected mainly corporations adjusting to business cycles (ie, oil and gas) and cost reduction.
“There is still no sign of widespread layoffs due to company closures in key sectors.
As at April 2015, both the unemployment rate and the labour force participation rate had remained steady at 3% and 67.7%, respectively,” it added.
The ongoing projects (ie, MRT and LRT works, projects carried over from the Tenth Malaysia Plan and property construction) are sufficient to maintain the pace of investment growth this year.
Sector-wise, HLIB Research said most industries were expected to perform better in the second half of 2015, mainly reflecting recovery from the GST effect and the east coast flood impact late last year.
The services sector, the key driver of overall GDP growth, is expected to remain resilient, thanks to the post-GST growth recovery in consumption-related components and better tourism contribution.
HLIB Research said notwithstanding matured oil palm-planted areas and incipient signs of El Nino, it expects the agriculture sector to rebound to a small positive growth after contracting in the first half of 2015, mainly credited to a normalisation outcome from the massive flood that occurred late last year.
HLIB Research expects the Government to expedite its 2015 development expenditure of RM48.5bil in the second half of 2015, given a slow start of RM8bil spent in first-quarter 2015.
The research house has raised its forecast of the current account surplus to RM28bil in 2015, given a higher oil price assumption of US$60 per barrel, the weaker ringgit, the higher commodity export volume and the lower import elasticity.
Despite the noise on fiscal flexibility, HLIB Research opined that the fiscal deficit of 3.2% of GDP was achievable, supported by an on-target GST collection, the scrapping of the fuel subsidy scheme and rationalisation in expenses.
Higher oil prices may provide an upside surprise to oil-related revenue.
“We maintain our inflation forecast at 2.5% for 2015, with a peak in third quarter 2015.
“The lower-than-expected GST impact is offset by higher fuel pump prices and potential imported inflation via the weaker ringgit,” HLIB Research said.
The research house expects Bank Negara to leave its overnight policy rate unchanged at 3.25% until end-2015.
Domestically, growth and inflation outlook are expected to stay within the central bank’s expected range of 4.5%-5.5% and 2%-3%, respectively, this year.