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Full-Year GDP Could Exceed 5.5% on Stronger 1H, Says Bank Negara
Full-Year GDP Could Exceed 5.5% on Stronger 1H, Says Bank Negara
18/008/2014 (Sun Daily) - The Malaysian economy, as measured in gross domestic product (GDP), is likely to exceed 5.5% growth judging from encouraging performance in the first half of 2014, with the economy growing 6.4% in the second quarter, building on the 6.2% rise in the first quarter, said Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.
"With 6.3% growth in the first half of the year, the (full-year) projection will be revised upward during the Budget," she told a press conference last Friday in conjunction with the announcement of the second-quarter GDP performance.
Earlier, Bank Negara had projected the economic growth for 2014 will be within the 4.5% and 5.5% range.
Economists believe the higher GDP growth of more than 5% is achievable given that private consumption to continue supportive.
AmResearch analyst Patricia Oh opined that private consumption in the second half will be underpinned by the recently ended raya celebrations and the year-end holiday season.
RAM Ratings on the other hand has upgraded its GDP growth projection from 5.1% to 5.6% on the back of resilient domestic demand and strengthening external demand.
Alliance Research however expects the growth momentum to moderate in the second half on slowing domestic demand and easing external demand.
M&A Research in a research note said it has revised upward the full-year GDP growth by 50 basis points to 5.5% as Malaysia is on the right track to register solid economic growth.
"Given the solid domestic demand that advanced by 6.5% in 1H14, we predict that Malaysia's economy will be able to weather the volatility emanating from the slowdown in US quantitative easing measures," the research house added.
Malaysia's sterling 6.4% second-quarter growth, which had beaten analysts expectations of 5.8%, was driven by higher export, continued strength in domestic demand and activities in the private sector.
Private consumption, which grew by 6.5% during the quarter, was supported by stable employment conditions and continued wage growth.
Private investment, meanwhile, expanded 12.1% underpinned by investments in the services and manufacturing sectors.
On quarter-on-quarter basis, the economy grew by 1.8%.
On the supply side, all sectors registered positive growth, with the services sector rose 6%, supported by trade-related sub-sectors.
The manufacturing sector edged up 7.3%, on the back of strong performance in the electronics and electrical segment.
However, the construction sector expanded at a more moderate pace, only growing at 9.9%.
The agriculture sector grew 7.1% supported by stronger palm oil production while the mining sector, which went up by 2.1%, was boosted by higher crude oil and natural gas production.
Zeti believes private sector activity will remain the key driver of growth, but exports growth is expected to moderate in the second half of the year due to the higher base effect.
She expects inflation, measured by the consumer price index (CPI) will temporary rise in 2015 as a result of price adjustment with the implementation of goods and services tax (GST) starting April next year.
However, inflation is seen to stabilize towards the long-term average of 3% in 2016.
For the second quarter of 2014, CPI edged lower to 3.3%, reflecting lower inflation in the food and non-alcoholic beverages category.
Zeti foresees there will be no huge impact on the economic growth even with the implementation of GST.
"GST is unlikely to have a significant impact on GDP as price adjustments will be accompanied by income transfer to support low income group," she stressed.
When asked of the central's bank monetary policy, Zeti opined the current 3.25% overnight policy rate (OPR) is still supportive, but any further adjustments will be based on inflation growth, risks to economy and whether there are any financial imbalances.
Bank Negara had in last month raised 25 basis points in the OPR to 3.25%, the first hike in three years.
Oh is maintaining her view that the central bank will keep the OPR at 3.25% for the rest of the year despite demand-push inflation becoming more apparent since the second quarter due to higher consumer demand.
RAM Rating, however, expects the OPR to end the year at 3.5% given the build-up of inflationary pressures and upward revision in growth expectations
Oh commented that other risks that Malaysia is face include the fiscal consolidation, lower consumption and investment in the public sector and slowing loan growth.
"With 6.3% growth in the first half of the year, the (full-year) projection will be revised upward during the Budget," she told a press conference last Friday in conjunction with the announcement of the second-quarter GDP performance.
Earlier, Bank Negara had projected the economic growth for 2014 will be within the 4.5% and 5.5% range.
Economists believe the higher GDP growth of more than 5% is achievable given that private consumption to continue supportive.
AmResearch analyst Patricia Oh opined that private consumption in the second half will be underpinned by the recently ended raya celebrations and the year-end holiday season.
RAM Ratings on the other hand has upgraded its GDP growth projection from 5.1% to 5.6% on the back of resilient domestic demand and strengthening external demand.
Alliance Research however expects the growth momentum to moderate in the second half on slowing domestic demand and easing external demand.
M&A Research in a research note said it has revised upward the full-year GDP growth by 50 basis points to 5.5% as Malaysia is on the right track to register solid economic growth.
"Given the solid domestic demand that advanced by 6.5% in 1H14, we predict that Malaysia's economy will be able to weather the volatility emanating from the slowdown in US quantitative easing measures," the research house added.
Malaysia's sterling 6.4% second-quarter growth, which had beaten analysts expectations of 5.8%, was driven by higher export, continued strength in domestic demand and activities in the private sector.
Private consumption, which grew by 6.5% during the quarter, was supported by stable employment conditions and continued wage growth.
Private investment, meanwhile, expanded 12.1% underpinned by investments in the services and manufacturing sectors.
On quarter-on-quarter basis, the economy grew by 1.8%.
On the supply side, all sectors registered positive growth, with the services sector rose 6%, supported by trade-related sub-sectors.
The manufacturing sector edged up 7.3%, on the back of strong performance in the electronics and electrical segment.
However, the construction sector expanded at a more moderate pace, only growing at 9.9%.
The agriculture sector grew 7.1% supported by stronger palm oil production while the mining sector, which went up by 2.1%, was boosted by higher crude oil and natural gas production.
Zeti believes private sector activity will remain the key driver of growth, but exports growth is expected to moderate in the second half of the year due to the higher base effect.
She expects inflation, measured by the consumer price index (CPI) will temporary rise in 2015 as a result of price adjustment with the implementation of goods and services tax (GST) starting April next year.
However, inflation is seen to stabilize towards the long-term average of 3% in 2016.
For the second quarter of 2014, CPI edged lower to 3.3%, reflecting lower inflation in the food and non-alcoholic beverages category.
Zeti foresees there will be no huge impact on the economic growth even with the implementation of GST.
"GST is unlikely to have a significant impact on GDP as price adjustments will be accompanied by income transfer to support low income group," she stressed.
When asked of the central's bank monetary policy, Zeti opined the current 3.25% overnight policy rate (OPR) is still supportive, but any further adjustments will be based on inflation growth, risks to economy and whether there are any financial imbalances.
Bank Negara had in last month raised 25 basis points in the OPR to 3.25%, the first hike in three years.
Oh is maintaining her view that the central bank will keep the OPR at 3.25% for the rest of the year despite demand-push inflation becoming more apparent since the second quarter due to higher consumer demand.
RAM Rating, however, expects the OPR to end the year at 3.5% given the build-up of inflationary pressures and upward revision in growth expectations
Oh commented that other risks that Malaysia is face include the fiscal consolidation, lower consumption and investment in the public sector and slowing loan growth.