OCBC Chief Economist warns of rising inflationary costs in Malaysia

OCBC's Chief Economist is bullish on 2017's prospects.

According to Serena Ling, the Chief Economist of OCBC based in Singapore, 2017 turned out to be a relatively robust year for global growth and risk-taking.

This is despite the global market expectations that some turmoil or turbulence could surface following market concerns about protectionism from the U.S. and heightened geopolitical risks.

Serena says that "even the US Federal Reserve's three rate hikes and unwinding of its balance sheet, coupled with the ECB's tapering of its asset purchases, maiden rate hikes by other major central banks like Bank of Canada (BOC), Bank of England (BOE) and Bank of Korea (BOK) did not dent market optimism".

She added that "given the search for yield, Emerging Markets including Asia were key beneficiaries of fund flows"

MALAYSIA PROSPECTS BRIGHT

Serena argues that for Malaysia's performance in the fourth quarter, expectations of a good showing is very bright.

"Given the strong performance in the first three quarters of 2017, full-year growth is likely to come closer to the upper range of the official projection of between 5.2 - 5.7% in 2017" she outlined. Serena continued "with exports, manufacturing, and higher oil prices to support economic activities, GDP growth is projected at a healthy 5.0% in 2018".

There are still economic headwinds however, as the Chief Economist of OCBC says that "the pick-up in economic activities will not come without higher inflationary pressures and that the domestic prices continued to rise into 4Q17, underpinned by increases in transport cost as well as higher prices for food and non-alcoholic beverages. As such, headline inflation is also likely to come in at the upper-end of the official forecast range of 3 - 4% for 2017".

MALAYSIAN POLITICAL FACTORS ARE HIGH ON THE LIST

OCBC however factors in heavily some political scenarios that could shift the current economic balance. "Even with clear signs of growth into 2018, the economy is still susceptible to external shocks such as a global growth slowdown or geopolitical tensions. The general election is also due to be called by August 2018. With inflation pressures pacing relatively faster vis-à-vis its Asian peers, Malaysia would need to stay vigilant on any early signs for a faster-than-expected surge in inflation into 2018 given the sizable household debt levels" continued Serena.

ASIA BULLISH

In a statement issued to the press, OCBC's Chief Economist says that "in Asia, we are especially reminded of the external demand improvement seen across the region. The global and regional manufacturing and trade momentum remained healthy into 2H17".

She cautions that China could prove to be a growing concern. "China saw a very soft economic landing in 2017 with GDP growth around 6.9% despite market concerns about the ongoing deleveraging and environmental policy focus" Serena cautioned.