MIER cuts 2018 GDP growth forecast to 4.7% from 5.5%

KUALA LUMPUR: The Malaysian Institute of Economic Research (MIER), which revised downwards its full-year gross domestic product (GDP) growth projection for the country to 4.7%, said business and consumer sentiment declined in the third quarter of 2018 (Q318).
Having previously projected the economy to grow at 5.5% for 2018, MIER cut its forecast to 4.7% due to the slower economic growth seen in the first half of the year.
Its executive director Prof Dr Zakariah Abdul Rashid told reporters at a media briefing that a subdued second half is anticipated while taking into account the slowdown seen in exports, industrial production index, private consumption and private investment.
As for 2019, GDP growth is expected to range between 5% and 5.5%.
Zakariah is hopeful that private investment will continue to be supportive of the economy as public spending shrinks.
On a similar note, the Business Conditions Index (BCI) weakened in Q318 to 108.8 points from 116.3 points in Q218, attributable to factors such as deceleration in production, less active investment spending albeit stronger export orders, higher domestic demand and marginal increase in sales.
The Consumer Sentiments Index (CSI), was down to 107.5 points in the quarter under review from its 21-year high of 132.9 points recorded in Q218.
“The second quarter was an outlier because it was during the general elections. These two indices essentially gauges the sentiments,” he said.
He added that the decline is also due to the surprise results of the polls.
Despite cautious and selective spending plans, the CSI was influenced by factors such as better income, financial expectations trending up on higher employment prospects and worries on rising prices moderating.
Both indices still remain within the optimistic threshold of 100 points and are in expanding mode.
Zakariah noted that it is unlikely for a twin deficit to take place despite the reduced balance in the current account which was at RM3.9 billion in Q218.
“Even though net current account balance has shrunk, I don’t think we will be facing twin deficit... I think net current account balance up to end of the year (will) still be able to deliver a positive balance. Deficit will only remain in the public sector account and not on the net current account balance,” he said while echoing Finance Minister Lim Guan Eng who said earlier this month that the current account will remain in surplus this year.
Averaging at 1.3% between January and August, inflation which has been tame this year due to the tax holiday and the sales and services tax, is expected to stand at 1.4% for the whole year.
Ringgit is expected to be under pressure due to short-term capital reversal despite good trade performance.
Some of the identified risks to the economy include slower than expected growth in private consumption and investment, stronger cuts in government spending, trade war and fall in crude oil prices, among others.