MIER lifts 2017 GDP growth forecast to 5.6% on strong domestic demand

KUALA LUMPUR: The Malaysian Institute of Economic Research (MIER) has revised its full-year gross domestic product (GDP) forecast upwards to 5.6% from 5.4%, on the back of strong domestic demand.
Domestic demand, which is touted as the engine for growth in 2017, will see a further boost from buoyant external demand.This will also be supported by recovery in manufacturing, pick up in trade momentum, stronger investment activities and buoyant financial markets.
However, consumer sentiments is expected to be subdued in the fourth quarter of 2017 due to expectations of softer income, fewer job openings, build-up in price pressure and continuous let-up on shopping plans.
Meanwhile, business conditions appear to be less glum for the period, supported by brighter prospects in manufacturing, improved sales, rising prices, acceleration in exports pace, expansion on production.
Both the Business Condition Index (BCI) and the Consumer Sentiment Index (CSI) saw a quarter-on-quarter (q-o-q) decline in the third quarter of 2017, with the BCI falling from 114.1 points to 103.1 points while the CSI receded 3.6 points to 77.1 points.
The ringgit is expected to settle around the RM4.20 mark to US$1 by the end of the year after having averaged at RM4.15-4.16 this year. The ringgit gained further against the dollar today, hitting 4.1416.
On the energy front, MIER forecasts crude oil prices to average US$52-55 a barrel this year, and US$55-60 in 2018.
As for changes in the Overnight Policy Rate, MIER noted that it will depend on the inflation rate.
The institute is of the view that although inflation has been trending upward with headline inflation hitting 4.3% in September, it is unclear if this is a result of demand-pull or cost-push.
On another note, MIER executive director Professor Emeritus Dr Zakariah Abdul Rashid acknowledged that there is a mismatch between consumer sentiment and the growth chartered due to low income, which in turn has contributed to higher cost of living.
However, he said household income is gradually increasing.
“GDP performance and people’s welfare are not always consistent because GDP is the overall aggregate of the economic performance, whereas for people’s welfare we always refer to household income,” Zakariah said at a press conference after MIER’s National Economic Outlook 2018-19 Conference held here today.
He said the rise in wages also ties up with the increase in productivity, especially as the country gears up towards Industry 4.0.
Zakariah said mining and quarrying is propping up Malaysia’s productivity levels, which would drop to 66-67% from the total 72% without it.
He added that the country may fall short of achieving its target of increasing the compensation of employees which is currently around 35% to 40% of the GDP by 2020. He said the target set under the 11th Malaysia Plan may be achievable later than the targeted time frame.