KUALA LUMPUR: Standard Chartered Bank has cut Malaysia’s 2017 gross domestic product (GDP) growth to 3.8%, from its previous 4.0%. This was much lower than the government’s GDP growth projection of 4% to 5%.
According to Edward Lee Wee Kok, head of ASEAN economic research, the slightly more cautious outlook on the economy was due to a slower consumer consumption. The consumption growth level is expected to see a slowdown to 5.5%, in comparison to the previous year’s 6.0%.
Lee shared during the global research briefing 2017 that the consumption power in 2016 was supported by the one-off measures by the government for the option to reduce employees’ contribution to the Employees Provident Fund (EPF), but this effect is no longer sustainable to support purchasing power in 2017.
On a brighter side, there will remain support from investment through construction and ongoing infrastructure projects in the country, especially from the public enterprise. He however noted that the expenditure from the Government would be limited by the fiscal consolidation which Malaysia is currently undergoing. The bank’s forex strategist in ASEAN and South Asia, Divya Devesh, also forecast the ringgit to weaken to RM4.60 against the USD by mid-2017, before rebounding to RM4.40.
The main driver for the ringgit’s movement will depend largely on the pace of the rate hikes in U.S. Devesh shared that the ringgit’s valuation is attractive and would probably see less impact from the rate hikes in the U.S., as compared to other ASEAN currencies this year.
According to Standard Chartered, there is an expected rate cut by Bank Negara Malaysia this year, as this could help lower the debt servicing costs, amid an anticipated rate hike in U.S.
