PETALING JAYA: Malaysia’s economic outlook is expected to pick up slightly in 2017 to register a gross domestic product (GDP) growth of 4.4%, driven by exports and household spending, said the Institute of Chartered Accountants in England and Wales (ICAEW).
However, ICAEW said an anticipated rise in US interest rates and appreciation of the US dollar are expected to lead to a tightening of monetary conditions and triggering capital outflows, which could cause increasing financial stress.
This year, ICAEW said the country’s economy continues to face challenges as the possibility of declining global trade and commodity prices threaten to weigh on consumer and business spending.
“There is also the risk of accelerated government spending ahead of the general election, which is expected to take place before August 2018, which could result in an overshoot of the 3% fiscal deficit target,” it added.
ICAEW said the pressure for a rate hike will increase moving forward, with inflation surging on higher fuel and import costs in the second half of 2017. It may also prompt Bank Negara to raise the interest rate around the second half of the year.
“BNM’s likely hike in the interest rate will weigh on investment within the country, as the overall rise in yields and corporate loan rates wipe out the positive impact from the central bank’s policy rate cut last July,” it said.
Meanwhile, ICAEW said the business investment is expected to be relatively sluggish due to increased financing costs and significant uncertainty over the state of external demand, but an improvement in global conditions may support a modest recovery in the second half of 2017.
“Globally, 2017 has started on a positive note, however many uncertainties lie ahead. It still remains unclear to what extent the region and Malaysia will be impacted by the US strengthening economy and plans for more protectionist policies. Overall, prudent spending will be key to negotiating the way ahead,” ICAEW economic adviser Priyanka Kishore said.
On the currency front, ICAEW expects the ringgit to hover around 4.4 to 4.5 against the US dollar for most of the year.
