UBS: Malaysia’s real GDP to grow 5.5% in 2018

ubs-malaysian-gdpKUALA LUMPUR: Malaysia’s real gross domestic product (GDP) growth is expected to remain strong at 5.5% in 2018, driven by one off cash handouts to civil servants ahead of the general election and flagship rail projects such as the East Coast Rail Line (ECRL), says UBS Investment Bank.

“We estimate the activities associated with the ECRL construction, sorted for early 2018, to add 0.3-0.5 percentage point to the GDP growth.

“We expect a similar uplift from the High-Speed Rail (HSR) project in 2019,” associate economist Alice Fulwood said during a conference call yesterday.

She said the strong investment inflow into Malaysia, driven by China’s One Belt One Road policy coupled with relative preference for US and Chinese corporate investments, would also contribute substantially to the upbeat growth forecast.

For this year, Fulwood said GDP would likely grow 6% amid a lower inflation rate.

She expects the headline inflation to drop to 3.4% in 2018 from 3.9% this year, largely due to a rapid increase in fuel prices in early 2017.

“We think Bank Negara Malaysia will hike rates by 25 basis points twice in 2018, one in January and another in the second half of the year,” she said.

Fulwood said the strong domestic economic outlook and hawkish monetary policy outlook would underpin the ringgit strength next year, anticipating the local unit to trade at 4.10 by end of 2017 and strengthen to 3.90 against the US dollar in 2018.

On the upcoming general election, she said the risks towards investment dynamics seemed to be relatively low as most foreign investors were expecting policy continuity.