Bank Negara annual report: Real GDP by Expenditure table for Star Online story.
KUALA LUMPUR: Bank Negara expects the economy to record a sustained growth of 4.3% to 4.8% this year, up from 4.2% in 2016.
In its 2016 annual report released on Thursday, it said the gradual improvement in global growth, recovery in global commodity prices and the continued growth of domestic demand would together support the growth performance.
Domestic demand will continue to be the main driver of growth, underpinned by private sector activity.
Headline inflation is projected to average higher in the range of 3.0% to 4.0% in 2017, compared with 2.1% in the last two years. This is given the prospect of higher global commodity and energy prices, and the impact of the depreciation of the ringgit exchange rate.
“These cost-push factors, however, are not expected to cause significant spillovers to broader price trends, given the stable domestic demand conditions. Core inflation is, therefore, expected to increase modestly,” the central bank said.
Despite the higher inflation, Bank Negara expected private consumption growth to be sustained by continued wage growth and the increase in disposable income due. This is based on selected Government measures and higher global commodity prices.
Investment growth, meanwhile, is projected to remain modest in an environment of cautious business sentiment and continued uncertainty in the economy.
“Nonetheless, private investment activity will be supported by higher capital expenditure in export-oriented industries and implementation of ongoing and new projects, particularly in the manufacturing and services sectors,” the central bank said.
While public spending would fall as a result of the Government’s continued commitment to fiscal consolidation, the public sector will support growth, driven mainly by higher public investment arising from key infrastructure projects in selected sectors.
Bank Negara said Malaysia’s external sector was expected to remain resilient despite continued uncertainties in the global environment.
Both exports and imports are forecast to strengthen in 2017, underpinned by the projected improvements in global growth, higher commodity prices and sustained domestic demand.
Nonetheless, Bank Negara foresaw import growth would continue to outpace export growth, resulting in a lower trade surplus.
The services account is projected to record a larger deficit, in line with higher trade and improvement in investment activity.
Overall, Bank Negara forecast the current account would register a surplus of 1.0% to 2.0% of gross national income in 2017.
On the supply side, all economic sectors are projected to register positive growth this year.
Bank Negara said the services and manufacturing sectors would be the key contributors to overall growth.
The agriculture sector, meanwhile, is expected to rebound as yields recover from the El Niño weather phenomenon.
Economic and monetary management in 2017
External risks will increase uncertainty for the Malaysian economy and financial system, according to Bank Negara.
The prospect of growing protectionism among the major economies would have a dampening effect on global trade. And the possibility of increasing monetary policy divergence between the US and other major economies could lead to tighter financial market conditions, with higher volatility in capital flows and exchange rates.
“Nonetheless, the Malaysian economy’s strengths derived from its highly diversified economic structure, resilient external position and policy flexibility would provide it with the ability to weather these challenges going forward,” it said.
Bank Negara said its financial intermediation would remain supportive of growth, supported by strong bank balance sheets and a well-developed financial market.
Looking ahead, it said the challenging global environment demanded continued emphasis on building the nation’s economic resilience and broadening the sources of growth.
“Efforts are being intensified to rebuild policy space, proactively address potential vulnerabilities and unlock new growth areas,” the central bank said.
“Monetary policy in 2017 will continue to ensure that its stance is consistent with sustaining a steady growth path amid price stability.”
Bank Negara anticipates the policy environment to remain challenging.
“Although growth is expected to improve due to better performance of the external sector, the economy will be challenged by higher inflation, volatile capital flows and lingering uncertainties in the global economic and financial environment.
“While the risk of destabilising financial imbalances has remained largely contained, it will continue to be closely monitored,” it said.
Fiscal policy in 2017 will focus on further strengthening of the Government’s fiscal (revenue) position, while ensuring continued support for domestic growth and promoting economic inclusiveness.
Bank Negara expected the Government’s fiscal deficit to narrow further, underpinned by sustained growth in revenue and a modest expansion in operating expenditure.
It pointed out that in the 2017 Budget, fiscal resources had been strategically prioritised towards high-impact infrastructure projects and programmes for capacity-building.
The budget was also in line with efforts to ensure inclusive and continual growth.
“In particular, welfare enhancement programmes and socio-economic support are expected to sustain the capacity of lower- and middle-income segments to cope with the rising cost of living and provide support to private consumption.”
Bank Negara said its financial position, as audited and certified by the Auditor General, remained strong in 2016.
Its total assets amounted to RM451.0bil with a net profit of RM6.5bil for the financial year ending Dec 31, 2016.
Bank Negara declared a dividend of RM2.5bil to the Government for the year 2016.
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