Citi raises Malaysia's GDP forecasts

by **Cals** Tue 20 May 2014, 00:00

Business & Markets 2014

Written by Ahmad Naqib Idris Adzman Shah of theedgemalaysia.com

Monday, 19 May 2014 12:45

KUALA LUMPUR (May 19): Citi Research raised its GDP forecasts for Malaysia to 5.4% for 2014 and 5.6% for 2015 after the country reported higher-than-expected growth for the first quarter of 2014 (1Q14).

The new forecasts compare with Citi's previous estimates of 5% each for 2014 and 2015.

“This was above consensus (5.7%) and our estimates (5.2%) and probably exceeded official expectations of 4.5% to 5.5%,” said Citi in a note today.

The research house had attributed 1Q14 GDP growth to higher exports and public consumption.

“The acceleration in gross exports helped net export contribution turn positive even as the drag from inventories widened," Citi said.

Citi said domestic demand surprisingly accelerated, boosted by public consumption which surged 23.2% quarter-on-quarter on supplies and services.

Citi expects higher consumer spending in late 2014 and early 2015, despite signs pointing to a moderation in domestic demand in the coming quarters.

“While the composite leading indicator hints at some moderation in domestic demand in subsequent quarters, some front-loading of consumer spending in late 2014/early 2015 is likely ahead of GST (goods and services tax) implementation, as the experience of Japan and Singapore suggests,” said Citi.

On Malaysian interest rates, Citi expects a 50-basis point (bp) hike in 2014.

“We expect a 25bps rate hike in July, with a second 25bps hike in September, but do not rule out further hikes thereafter,” said Citi.