Malaysia posted the strongest economic growth since 2014, fuelled by rising exports and higher private consumption and investment, but rising inflation took some gloss off the solid economic data.
The better than expected fourth-quarter (4Q17) growth was supported by the external sector, while on the supply side, all economic sectors continued to expand except for mining.
However, the sterling performance was overshadowed by the rising inflation, which climbed to 3.7% compared to 2.1% in 2016.
Analysts believed the solid performance will pave the way for growth in 2018 though at a slower pace due to the high base.
Socio-Economic Research Centre Sdn Bhd ED Lee Heng Guie said the GDP growth for both the 4Q17 and 2017 were within expectations.
“Though the 5.9% growth in 4Q17 was somewhat slower compared to 3Q17, it is still a very good number, supported by continued strength in consumer spending and investments.
The major sectors are still delivering growth,” he told The Malaysian Reserve (TMR).
The full-year growth eclipsed the challenging 4.2% recorded in 2016. Malaysia’s economy grew 5.6%, 5.8% and 6.2% in 1Q17, 2Q17 and 3Q17 respectively.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the GDP figure was above expectations, propelled by external and domestic engines.
“Private consumption continued to grow above trend, despite the consumer sentiment index remaining below benchmark levels. We expect growth momentum to remain going forward,” he told TMR.
Affin Hwang Investment Bank Bhd chief economist Alan Tan said the momentum from 2017 is expected to carry through into 2018, but at a more moderate pace.
“GDP growth should be sustained in the first half of 2018 (1H18) at 5.5%, and 5% in 2H18. For the full year, we’re looking at 5.3%,” he said.
Lee expects the economy to expand 5.1% in 2018, driven by continued global growth.
Headline inflation continued to be a point of concern last year, hitting 3.5% in the final three months of 2017, slightly lower than the 3.6% recorded in 3Q17.
“Headline inflation is expected to moderate in 2018, reflecting a smaller contribution from global cost factors and a stronger ringgit compared to 2017,” Bank Negara Malaysia (BNM) said.
Tan said inflation’s sharp spike was due to the global crude price recovery in 2017, which saw domestic retail petrol prices rising from lows in 2016.
“We saw a sharp increase in cost of transport last year, which pushed inflation higher. But the jump is short term, cost-push related and due to the low base in 2016. Inflation should return to the 3% mark in 2018.”
Afzanizam said the high inflation was also contributed by the higher prices of food and non-alcoholic beverages.
“For 2018, the appreciating ringgit should help reduce inflationary pressures, especially for products sourced externally. The high-base factor could also come into play as we expect price appreciation to be slower than last year,” he said.
Last year, exports saw broad-based expansion particularly in manufactured exports, supported by demand from major trading partners.
For the whole of 2017, gross exports rose 18.9% compared to 1.2% in 2016, pushing the strong economic growth.
“Export growth will possibly slow in 2H18 due to the high-base effect from last year. So, we’re looking at a 7% increase in exports for 2018,” Tan said.
But global demand for local goods is expected to remain strong, he added, with demand for semiconductors to continue to support electrical and electronics (E&E) exports.
“Exports growth this year will be slower because 2017 was the best year in recent times. So, it’s a very high level that is unlikely to be repeated,” Lee said.
Manufacturing exports grew 18.9% last year compared to 3.3% in 2016. E&E exports rose 19.2% in 2017 versus a 3.6% growth a year earlier.
Malaysia’s trade balance widened to RM97.2 billion for 2017 compared to the RM88.1 billion posted in 2016.
External debt climbed to RM883.4 billion or 65.3% of the GDP as at end-December 2017, up from RM873.8 billion or 64.6% of GDP as at end-September 2017.
Lee said the level of external debt has yet to reach a tipping point, adding that the exposure to foreign currency fluctuation, and currency and maturity profiles are still manageable.
“It’s not that we’re hitting alarming levels but (the external debt) is something we have to monitor and try to contain from rising,” he said.