RHB | Malaysia | Outlook - More Moderate But Resilient Growth Envisaged For 2H, 30 June 2014

Economic Research	30 June 2014
Malaysia
Economic Outlook
More Moderate But Resilient Growth Envisaged For 2H The Malaysian economy recorded a strong growth of 6.2% y-o-y in the 1Q, underpinned mainly by a surge in exports and aided by a low base effect. However, we believe the spectacular growth will likely cool off and the economy will likely expand at a slower pace in the 2H of the year. This is on account of a slower increase in exports after a strong pick-up in 1H 2014, as the effect of a weaker currency fades and a higher base effect set in. Although domestic demand will likely moderate as well in the 2H 2014, dampened by slowing government spending due to fiscal consolidation drive and curbs on the property market, it will likely remain resilient. Indeed, we expect consumer spending to hold up and private investment to remain relatively strong in the 2H amid elevated price pressure. As a result, we expect real GDP to grow at a slower pace of 5.2% y-o-y in 2H 2014, compared with an estimate of +5.6% in the 1H. The middle-east geopolitical tensions pushed up crude oil prices in recent weeks but we believe it will likely be manageable. Moderating domestic demand will likely dampen imports of goods, and along with reviving exports will translate into an improvement in the country’s external position. We envisage the current account surplus of the balance of payments to widen in 2014. This will likely contribute to a build-up in the country’s foreign exchange reserves and provide some cushion to the ringgit, which is susceptible to fluctuations in the short term due to volatile capital flow. Meanwhile, the Government will likely be on track to meet its budget deficit target. We expect inflation to moderate but remain elevated in the 2H of the year and the Central Bank will likely raise its Overnight Policy Rate either in July or September and by 25 basis points to 3.25%. Economist:  Peck Boon Soon  | +603 9280 2163 Economist:  Shafizal Shafaai  | +603 9280 2179