Bank Negara Malaysia Annual Report 2016 - Is the Economy Doing Well?

1 April 2017


  • Global economic activity pick pu pace
  • Economic outlook for 2017 - where is the economy heading?
  • Sources of growth - Moving on twin engines
  • Issues and challenges
  • Managing risks from household indebtedness
  • Conclusion


  • The global economy continues to stay on positive track, buoyed by expectations that the Trump administration’s reflationary policies will boost the growth trajectory of the US economy and corporate earnings, helping to lift the global growth prospects.
  • But, downside risks to global growth still prevalent. These include the potential implications from the Trump administration’s shaping of trade and economic policies, the impact of higher US interest rates, the rise in protectionism, potential complications associated with the Brexit’s negotiation process as well as the political uncertainties associated with a slate of impending European elections.
  • The Malaysian economy will perform better this year. BNM estimates real GDP growth of 4.3-4.8% in 2017 vs. SERC’s 4.3% (4.2% in 2016), supported by continued expansion of domestic demand as well as improved export growth. The growth estimate is premised on the strength of consumer spending, which may face hurdles from higher cost of living, cost-driven inflation pressures and weak sentiments. Exports too could falter if there is trade flow disruption from the trade protectionism mindset as well as financial markets volatility.
  • Inflationary pressures are developing in recent months, reflecting the combined impact of fuel prices adjustment, the spillover effect of the ringgit’s depreciation on imported goods and services and other cost-related pressures. The central bank estimates headline inflation to average 3.0-4.0% in 2017, meeting SERC’s estimation.
  • We do not expect BNM to ease interest rate further going by continued expansion of economic growth amid the developing of cost-induced inflationary pressures, inflicted by higher fuel prices. We expect BNM to keep the overnight policy rate (OPR) at 3.00% in 2017 for now.
  • The ringgit appears stabilizing though the downside pressure remains prevalent. With the Trump’s pro-business and pro-growth policies lifting higher inflation risk, underpinning the Fed’s rate hikes and hence, support the US dollar rally at least in the first half-year of 2017. BNM’s foreign exchange market stabilization measures have seen some improvement in balancing the supply and demand of the ringgit as well as the conversion of export proceeds into ringgit. BNM uses market consensus of RM4.40 per US$ for this year vs. SERC’s RM4.20-4.40 (RM4.4860 at end-2016).

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