KUALA LUMPUR (Aug 15): AllianceDBS Research has upgraded their 2Q17 gross domestic product (GDP) forecast to 5.5%, from 5.2%, in view of stronger services sector index and improved external demand.

In a note today, AllianceDBS Research chief economist Manokaran Mottain said the services sector index may have grown stronger by 7% year-on-year (y-o-y) in 2Q17, registering the fastest pace of growth since 1Q15.

Manokaran added improved external demand has led to stronger manufacturing activity – production was faster than expected at 6.2% during the second quarter, led by E&E sub – sector production (2Q17: +9.8%).

“The strong trend seen in manufacturing production reflected the exports data seen during the quarter,” he said.

He explained that exports grew 20.6%, whilst imports expanded 19.1% (1Q17: 27.7%). 

“Rising imports trend suggest that future exports would still be stronger in the coming months,” said AllianceDBS Research.

“On domestic demand side, several leading indicators point to higher private consumption during the quarter,” said Manokaran, adding that retail sales up 11.5% and MIER consumer sentiments rebounded to 80.6 - highest recorded since 4Q14 although still remain below the 100-point parity level.

However, he said imports of capital goods slowed down markedly during 2Q17 (6.9%), trimming optimism.

Manokaran said he expects private investment growth to have slowed down during the quarter, but still higher than levels seen a year ago.

“We continue to maintain inflation forecast of 3.5% for 2017 and expect the Overnight Policy Rate to be kept steady at 3% throughout the year,” he said.