KUALA LUMPUR: Malaysia’s economic growth is expected to remain stable in 2018 but analysts believe that compared with its performance in the first half of the year, Malaysia’s growth momentum could slow down in the second half of 2018 (2H18). In its economic viewpoint report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) projected gross domestic product (GDP) to slow further to 5.2 per cent in the second quarter of 2018 (2Q18). This was a shade lower than 1Q18’s forecast of 5.3 per cent, bringing the average forecast growth for to 5.3 per cent. On the expectation that growth of exports to moderate, sharply lower public spending post General Election (GE) and to some extent the higher base effect, we project GDP growth to slow further in the 2H18 to 4.8 per cent,” it said in the report.
However, it pointed out that given its cautious overtones for 2H18, its 2018 full year projection, though slower than the 5.8 per cent achieved in 2017, should remain elevated and teetering above trend at 5.1 per cent. It is also at the lower end of the Ministry of Finance’s (MoF) forecast of five to 5.5 per cent. This is in line with Bloomberg’s median consensus forecast (ranging from 4.4 to 5.8 per cent) based on 32 contributors,” it noted. It further noted that it would be relatively challenging to achieve a deficit target of 2.8 per cent of GDP in 2018 unless Malaysia’s revenue picks up and spending is reduced. In addition, it highlighted that GDP growth has to stay above trend or higher than five per cent to ensure reasonably higher corporate and personal income tax revenue growth. To be more realistic, we believe that revenue growth would be slower this year in line with the expectation that the economy would be slower. Revenue growth is projected to moderate to 4.2 per cent from an estimated 5.7 per cent rise in 2017 (down three per cent in 2016). In contrast, the MoF forecast revenue to expand by 6.4 per cent from an estimated rise of 6.1 per cent in 2017. Factoring in an election year whereby fiscal spending would be relatively higher, and in spite of the expectation of further rise in O&G and GST revenue, we remain sceptical that a 2.8 per cent of GDP deficit target could be achieved,” it explained. Instead, it projected that Malaysia’s GDP would improve slightly and miss the deficit target by a whisker at 2.9 per cent of GDP. Our forecast assumes that the GST rate will remain unchanged at six per cent for the next three years and that the government will maintain subsidies on electricity tariffs,” it noted. Since growth has grown beyond expectation in 2017, it could have peaked in the 3Q17 and only begun to moderate in 4Q17.
