BNM expects sustained economic growth in 2017

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KUALA LUMPUR (May 19): Bank Negara Malaysia (BNM) expects economic growth to be sustained in 2017, following the announcement of the gross domestic product (GDP) figures for the first quarter of the year (1Q17).

BNM governor Datuk Muhammad Ibrahim today announced the economic numbers for 1Q17, with a GDP growth of 5.6%, the highest since 1Q15.

Growth for the quarter was driven by stronger domestic demand, particularly private sector spending, while a turnaround in the agriculture sector and higher growth in manufacturing and services sectors had supported improvement on the supply side.

While GDP growth for the quarter had beat expectations, the central bank maintained its full-year forecast range of 4.3% to 4.8%.

“We expect growth to be sustained, our projection is still between 4.3% and 4.8%. What we have seen over the past three months is the strong growth in private investment and exports sector.

“If these two components show strong numbers going forward, we will be seeing growth at the higher end of the projection,” he said.

Going forward, domestic demand will continue to be the main driver of growth in 2017, supported by improvement in exports as global trade picks up, said Muhammad.

Meanwhile, headline inflation for the quarter rose to 4.3%, which he said was mainly driven by cost factors.

He explained that the main factor pushing inflation was the increase in domestic fuel prices, amid the higher global crude oil prices, following the Organization of Petroleum Exporting Countries (OPEC)’s decision to cap production.

“The price of RON95 fuel rose 29% to average at RM2.53 in 1Q17 from an average of RM1.73 in 1Q16. Inflation was also driven by shortages in fresh food supplies amid adverse weather conditions which had resulted in higher prices of food.

“It is important to note that the higher inflation rate was driven by cost rather than demand factors. Moving forward, headline inflation is expected to moderate in 2Q17 onwards,” he said.

On the ringgit, Muhammad said the currency has stabilised along with other major regional currencies amid the broad weakening in the US dollar, resulting in the ringgit appreciating 4% against the greenback as at May 16, 2017.

He attributed the weakening US dollar to market uncertainty on the direction of the current US administration’s policies.

“Following the announcement of stability measures on Dec 2, 2016, and April 13, 2017, the ringgit and domestic foreign exchange (forex) market has further improved. This is reflected in the further improvement across all liquidity and volatility indicators for the forex market.

“Going forward, we should be mindful that external uncertainties will still result in higher exchange rate volatility. These external uncertainties include the US interest rate normalisation, volatility in global oil prices and geopolitical developments,” he said.