KUALA LUMPUR (Feb 3): AmInvestment Bank Bhd's economic research expects the overall business sentiment in Malaysia to remain weak at least until the end of first half of 2017 (1H2017), as uncertainties on the external front will remain as the main headwinds alongside domestic challenges.

The research house expects a turnaround in 2H2017, it said in its economic report today

"On the whole, we project the domestic economy to grow around 4.5% in 2017 supported by domestic activities with exports complementing, on the back of stable demand and weak," the research house said.

"We reiterate our 2017 MYR/USD full year average outlook of 4.48," it added.

Yesterday, the Nikkei manufacturing Purchasing Managers' Index (PMI) registered its highest reading in 20 months although it is still in the contractionary mode.

January's reading was at 48.6%, higher than December's reading of 47.1%, in which a reading above 50 denotes expansion and below 50 indicates contraction.

"[The] improvement in January's reading was largely supported by the rise in global demand. As a result, we noticed a slower fall in production and new orders," it said.

This signals that the overall operating conditions have started to improve slightly, it added.

It said export orders saw a positive growth in January after an eight-month slump, kicking in positively for exports is the weak ringgit and stable demand.

Meanwhile, employment in the manufacturing sector remained in the positive growth trajectory and on the price front, a sharp growth in input costs caused manufacturers to raise their charges, it said.

"Hence, we expect potential inflationary pressure to build up in 2017 underpinned by higher producer prices that would result in partial or total transfer to consumer prices," it added.