KUALA LUMPUR (Sept 27): Standard Chartered Global Research (StanChart) expects Malaysia's gross domestic product (GDP) to rebound to 5.4% in 2017, from 4.2% in 2016.

“We maintain our view that growth will ease in the second half of 2017 (2H17), from the robust 5.7% recorded in the first half of 2017 (1H17),” StanChart said in a report titled: "Q4 2017 — Is this as good as it gets" released today.

The research house said private consumption may slow down mildly, as real wage growth was slightly negative in 1H17, while private investment is likely to moderate on slow loan growth.

“We expect private consumption to ease in 2H17. We have found that real wage growth affects domestic consumption, with a lag of about three quarters,” the report read.

It said the growth in 2H17 should receive support from external demand, especially the robust electronics cycle, but an unfavourable base effect may come into play in late fourth quarter (4Q).

Additionally, the research house also maintained its 2017 current account surplus forecast at 2.4% of GDP.

It said the second quarter (2Q) surplus was supported by a wider goods surplus and narrower services and income deficits.

The goods surplus was driven by a significant slowdown in capital-goods import growth to 7.1% year-on-year (y-o-y), from 42% in the first quarter (1Q).

“The electronics trade surplus, boosted by higher exports, also helped. Meanwhile, the commodities trade surplus narrowed as crude palm oil prices softened in 2Q versus 1Q,” StanChart said.

It said the average inflation forecast was also lower to 3.8%, from 4.0% while 2017 headline inflation forecast is at the upper end of the government’s projected range of 3% to 4%.

“We expect headline inflation to moderate further in 2H17, especially in 4Q, when an unfavourable base effect will kick in. Food prices may also ease on a stronger ringgit, capping imported inflation,” it said.

On the market outlook for Malaysia, StanChart said ringgit is among the most undervalued emerging market currencies, and foreign investors’ overall positioning remains extremely light.

However, ringgit sentiment onshore has improved with better US dollar supply dynamics.

“Onshore FX turnover is well off its late 2015 lows. At the same time, onshore foreign-currency deposits have turned a corner,” it said.

The ringgit also benefit from Malaysia’s strong linkage to the global supply chain, amid robust global export volumes.

Meanwhile, for Asia, StandChart expects export data around the region to soften gradually, after a strong 1H17.

China’s indicators point to slowing growth after a stronger-than-expected start to the year: an easing housing market, a weakening fiscal policy impulse, and softer exports.

“This, combined with the end of China’s inventory restocking cycle, should also cause exports to weaken across Asia for the rest of 2017 and early 2018,” StanChart said.