Malaysia Set for Solid, But Moderating Growth in 2018

(Bloomberg) -- Malaysia’s economic growth is set to moderate this year from a three-year high in 2017, but still post a solid performance on the back of strong domestic demand.

Gross domestic product rose 5.9 percent in the fourth quarter from a year earlier, the central bank said on Wednesday in Kuala Lumpur, slightly above the median estimate of 5.8 percent in a Bloomberg survey. The economy expanded 5.9 percent in 2017.

The economy has benefited from an export boom, a stable labor market and Prime Minister Najib Razak’s cash handouts to low-income earners, which have helped to underpin consumer spending in the Southeast Asian nation. Public spending on infrastructure projects have also added jobs and boosted investment. The government is forecasting growth of as much as 5.5 percent this year.

“Growth in 2018 will moderate slightly, but it will still be a good and solid year,” said Edward Lee, chief economist for Southeast Asia at Standard Chartered Plc in Singapore. “The ongoing infrastructure projects will support investment and external demand will remain healthy, but a bit slower than last year.”

Stronger growth since last year has fueled inflation concerns and prompted the central bank to raise interest rates in January for the first time since 2014. The central bank on Wednesday said growth this year will remain favorable, with domestic demand being a key driver.

“The expected faster expansion in global growth would continue to benefit Malaysia’s exports, with positive spillovers to the domestic economic activity,” the central bank said. “Headline inflation is expected to moderate in 2018, reflecting a smaller contribution from global cost factors and a stronger ringgit compared to 2017.”

What Our Economists Say...

The risk that Bank Negara Malaysia tightens again this year has eased a bit. Investment growth in fourth quarter was soft. Plus, there are substantial headwinds for investment in 2018.

-- Tamara Henderson, Bloomberg Economics

The growth recovery strengthens Najib’s position as he seeks to retain his power in a general election this year.

The ringgit has appreciated more than 3 percent against the dollar this year, among the best performers in Asia. The currency rose 0.3 percent to 3.9260 as of 4 p.m. in Kuala Lumpur.

Other Details

  • Private sector consumption rose 7 percent in the fourth quarter from a year earlier, while investment climbed 9.2 percent
  • Public sector expenditure growth eased to 3.4 percent
  • Exports increased 7.1 percent, while imports rose 7.4 percent
  • Service industries grew 6.2 percent while manufacturing rose 5.4 percent

©2018 Bloomberg L.P.

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