Analysts remain cautious on Malaysian economy despite central bank's rosy forecast

KUALA LUMPUR, March 29 (Xinhua) -- Analysts remain cautious on the Malaysian economy amid global policy uncertainties, although Malaysian Central Bank is more upbeat on the country's growth this year.

Bank Negara Malaysia (BNM) on Wednesday projected the country's economy to grow faster at 5.5 percent to 6 percent, mainly driven by sustained domestic demand. The forecast exceeds Malaysian government earlier assumption of 5 percent to 5.5 percent.

Malaysia's economy grew at 5.9 percent in 2017, driven mainly by private sector spending.

"We opine that BNM's macro projections are broadly realistic. Its projection in 2018 is envisaged on stronger global growth prospects and positive spillover to the domestic economy through increased wages and higher investment activity," said Hong Leong Investment Bank Research in its note Thursday.

The research house, however, noted that its growth projection of 5.3 percent was premised on the assumption that global growth will be more moderate as base effect eventually comes to an end.

"While we acknowledge our growth forecast may be conservative, we also feel that the upside risk of higher-than-expected global growth is partly offset by downside risk of increased financial market volatility emanating from policy uncertainties," it added.

Maybank Investment Bank Research also said in its report it maintained its 2018 real gross domestic product growth forecast of 5.3 percent.

"There are no changes to our other key forecasts for this year, except for the change in crude oil price average to 65 U.S. dollars per barrel from 60 U.S. dollars per barrel, which is supportive of our foreign exchange research forecast of further strengthening in Malaysian Ringgit against U.S. dollars," it said.

The research house estimated the Ringgit to end the year at 3.65 against the U.S. dollars, from 4.05 last year.

"With the revised official growth forecast being just marginally above the potential output growth of 5 percent to 5.5 percent, and the official inflation rate forecast trimmed to 2 percent to 3 percent from 2.5 percent to 3.5 percent previously, these appear supportive of our 'one and done' view on BNM's overnight policy rate i.e. staying at 3.25 percent for the rest of the year after the 25 basis point hike in January," it said.

Meanwhile, Kenanga Research's forecast of 5.5 percent growth remained at the lower end of BNM's growth range of 5.5 percent to 6 percent.

"This reflects our believe that growth already passes its peak in the second half last year and the reason it is still riding high is because there is still no let-up in the growth momentum. This is primarily due to the extension of the tech upcycle and the higher fiscal spending run up to the upcoming 14th General Election (GE14)," it said.

However, its forecast assumed higher public expenditure activities of 1.6 percent compared to BNM's 0.6 percent, in light of stronger fiscal push ahead of the upcoming GE14.

The research house's exports growth forecast is also lower at 6.9 percent compared to BNM's 8.4 percent as it expects trade to moderate in the second half as the tech upcycle is expected to taper and the higher base of last year.

The research house also remains cautious on trade flows moving forward as it is concerned about the impact of Trump administration's tariffs on trade and the possibility of similar retaliation by other major economies. Enditem