Economists raise GDP forecast after strong 1Q

by **Cals** Wed 21 May 2014, 01:47

Business & Markets 2014

Written by Charles Yong of theedgemalaysia.com

Tuesday, 20 May 2014 10:41

KUALA LUMPUR: Most economists at local research houses have increased their gross domestic product (GDP) forecasts for the year by as high as 0.5 percentage points to 5.5%, following last Friday’s announcement that GDP in the first quarter (1Q) grew 6.2% year-on-year.

It beat market consensus based on a Bloomberg poll of a 5.7% increase.

The FBM KLCI rose 0.2% to post a new record close of 1,887.07 yesterday, said to be due to the stronger than expected economic figures. The ringgit rallied 0.7%, the biggest gain in a month, to 3.2108 per US dollar, according to data compiled by Bloomberg. It reached 3.2078, the highest level since Dec 11.

A survey of nine research houses showed that six have increased their forecasts. Of the three that did not, Alliance Research Sdn Bhd is “highly likely” to do so in the near term, while RHB Research Institute Sdn Bhd had a more optimistic forecast of 5.4% before the result was released.

CIMB Research has revised its forecast to 5.5% from 5%, citing the strong start to the year and positive outlook for the rest of 2014.

“Despite concerns about the higher cost of living, we think that consumer spending will be cushioned by the stable job market, steady income growth as well as government support measures to ease the cost burden on low and middle income households,” it said in a note yesterday.

“Furthermore, we think that the ongoing implementation of the Economic Transformation Programme projects and a firmer global economy augur well for Malaysia’s private investment outlook.”

HLIB Research also raised its forecast from 5% to 5.5%, although it still expects GDP growth to taper off in the coming quarters due to higher base and fading export boost.

It said in a note yesterday that it previously underestimated the strength of the electrical and electronics sector, the contribution of residential property construction, and the resiliency of consumer spending despite subsidy reductions. Public spending also did not moderate as quickly as it projected.

Maybank Investment Bank Research cited the better external trade outlook as the key factor in its upward revision to 5.4% from 5%. It previously expected net exports to contract by 17.6% but now projects it to expand by 12.9%.

Also citing external demand as a key driver of growth this year are AmResearch and Kenanga Research. AmResearch has increased its forecast from 5.1% to 5.3%. Kenanga, which previously had a range of between 5% and 5.5%, has now fixed its estimate at 5.5%.

JF Apex Securities, which raised its forecast from 5% to 5.3%, expects GDP to increase by 5.6% in the next quarter, backed by strong exports especially in global semiconductor sales.

BIMB Securities Research, on the other hand, said it would only revise its forecast from 5.2% when the 2Q results are released. It said the 1Q’s results are slightly distorted by factors such as the festive season in China and the cold weather in the US.

This article first appeared in The Edge Financial Daily, on May 20, 2014.