Malaysia Raises Its 2017 Economic Growth Forecast to 5.2%-5.7%

By Yantoultra Ngui Features Dow Jones Newswires

KUALA LUMPUR, Malaysia--Malaysia sharply raised its economic growth forecast for this year and next year, adding to signs of confidence in the country's economic strength as speculation builds that Prime Minister Najib Razak may call an early election.

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Mr. Najib said in the preface to an annual government report that stronger domestic demand and exports would push up the growth rate to between 5.2% and 5.7% in 2017, compared with the country's earlier official estimate of between 4.3% and 4.8%.

The report came ahead of a budget announcement later in the day, in which Mr. Najib is expected to shore up support for his government by giving more handouts to the less well-off and rolling out measures to mitigate rising costs ahead of an election that must come by next summer.

The economic report indicates that the government has more leeway for such measures given the higher revenues generated by a more vibrant economy. The nation's fiscal deficit will likely fall to 2.8% of gross domestic product next year, from 3.0% this year, according to the report.

The upward revision of the growth forecasts follows much improved data from Southeast Asia's third-largest economy since the start of 2017 that has eased concerns about growth.

In the second quarter, Malaysia's GDP grew at a faster-than-expected pace of 5.8%, its biggest expansion in more than two years. That was powered by growth in the private and public sectors, and a broad-based expansion in exports of manufactured goods and commodities. Industrial production and export figures since then have continued to point to strengthening growth. Third-quarter GDP data will be released next month.

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The ringgit has also gained more than 5% against the dollar so far this year, driven by encouraging domestic macroeconomic conditions and partly by central bank measures introduced since the end of 2016 to support the currency.

An improved current account outlook should also help support the currency. Kuala Lumpur expects its current account surplus to hold firm in 2018, edging up to 32.9 billion ringgit ($7.77 billion) from MYR32.3 billion expected in 2017, the report showed.

The government said that while the economy is now better positioned to weather external challenges, developments overseas could still impact the economy.

"Despite the strong growth momentum, Malaysia as an open economy is not immune to external headwinds," the government said in the report. These include rising protectionism, policy uncertainties in advanced economies, and volatility in financial markets, it added.

Exports growth is projected to decelerate to 3.4% in 2018 from a robust 16.6% rise estimated this year with electrical and electronics products and commodities still the major drivers. That should nudge down overall economic growth to 5.0%-5.5% in 2018, the report said.

Inflation is expected to slow to between 2.5% and 3.5% next year from between 3.0% and 4.0% estimated for 2017, a factor that suggests the central bank will be in no rush to tighten policy for some time to come.

-- Write to Yantoultra Ngui at yantoultra.ngui@wsj.com

(END) Dow Jones Newswires

October 27, 2017 03:44 ET (07:44 GMT)