LIDIANA ROSLI
KUALA LUMPUR: Domestic demand will remain the key growth driver for Malaysia come 2018 supported by solid labour market conditions and investments, mainly in infrastructure spending.
Institute of Chartered Accountants in England and Wales (ICAEW) Economic Advisor and Oxford Economics Lead Asia Economist, Sian Fenner said key projects such as the KL-Singapore High Speed Rail Line (HSR) is expected to lead the trend.
"Phase One of the HSR is already slated to begin in 2018, and the Malaysian government has also earmarked RM6.5 billion under Budget 2018 to develop rural infrastructure within the country," she said at the ICAEW Southeast Asia Economic Insight Q4 2017, earlier today.
"We also expect solid labour market conditions and infrastructure spending, funded both domestically and via foreign direct investment flows to continue to support solid household spending and investment."
However, Fenner noted that household debt servicing costs are likely to increase in line with the expected hike of an estimated 25 basis points in the overnight policy rate (OPR) by Bank Negara Malaysia.
Gross domestic product (GDP) for 2018 is also expected to ease from an estimated six per cent to 5.1 per cent on the back of moderating export growth and tighter credit conditions.
"Synchronised recovery in global growth will continue to be supportive of export," said Fenner.
"However momentum is likely to ease over 2018 as global trade recovery enters a more mature stage and Chinese import growth cools on the back of a tightening monetary policy."
ICAEW also expects core inflation to grow amid robust domestic demand; with headline inflation expected to moderate to 2.9 per cent in 2018, from an estimated 3.8 per cent.
Fenner caution that the 14th Malaysian General Election (14GE) that is expected to take place sometime within the first half of 2018 will also impact incoming investment however these implications are to be expected and the true impact will only be known on the back of the results.
"Overall, we expect the process of monetary policy normalisation in 2018 by Bank Negara to proceed in a gradual and well-communicated manner," she said in closing.
"A very gradual macro policy normalisation cycle, along with still relatively solid trends in global growth is expected to ensure that growth remains reasonably resilient in Malaysia and across the region.”
Founded in 1880, ICAEW is a world leading professional membership organisation headquartered in London with international offices in Kuala Lumpur, Singapore, Vietnam and Indonesia.