KUALA LUMPUR (April 6): Malaysia is expected to chart gross domestic product (GDP) growth of 5.4% this year, benefiting in the short-term from robust trade growth and resilient domestic demand, a product of a pro-consumer Budget and higher investment, said HSBC Global Research in its Asian Economics report for the second quarter 2018.

The economy grew at 5.9% year-on-year in 2017.

“In 2018, GDP growth will likely remain above trend as the government included various additional pro-consumer spending measures in the 2018 Budget. Moreover, elections are due in 2018, which should help boost spending,” said HSBC.

The report added that spending for the upcoming general elections campaign should keep private consumption elevated in the first half of the year.

While private investment expanded over 9% in 2017, HSBC said growth may slow slightly in 2018.

“But we expect public infrastructure investment realisation to accelerate sharply, partly driven by Belt and Road Initiative projects such as the East Coast Rail Link, alongside other large-scale projects,” it explained.

Overall, HSBC expects 2018 and 2019 GDP to remain strong, but growth should moderate to 5.4% and 4.7%, respectively, from 5.9% in 2017.

HSBC reported that Malaysia’s current account improved slightly in 2017 driven primarily by a stronger trade balance as robust goods exports growth stemming from the tech cycle as well as higher commodity shipments resulted in a higher current account surplus.

It added that Malaysia has slowly built back foreign exchange reserves, with the latest reserves amounting to US$103.7 million.

“This has helped moderate external risks, but external metrics are still on the weaker side. Meanwhile, on the capital account side, foreign funds have slowly returned to the local bond market,” said HSBC

As for the rate hike by Bank Negara Malaysia (BNM) in January, HSBC thinks BNM will keep the policy rate on hold for the rest of 2018 as core consumer price index has decelerated since the middle of the year, possibly driven by subdued services sector wages.

The authors of the Malaysian segment of the report were economist Joseph Joseph Incalcaterra and economics associate Maitreyi Das.