In line with our expectation, the 4Q2017 GDP print stood at 5.9% y/y from 6.2% y/y in 3Q2017, beating market consensus of 5.7%. This brings the 2017’s full-year GDP of 5.9%y/y to fall in-line with our expectation from 4.2% in 2016. The economy in 4Q2017 was driven by the surge in government spending of 6.9% y/y from 3.9% and favourable private consumption growth of 7.0% y/y from 7.2% in 3Q2017. The overall performance from the supply side of the growth model was supportive, with firm growth in agriculture underpinned by higher production of palm oil, which negates the dip in the mining sector. Meanwhile, construction, manufacturing and services grew at a steady pace. Hence, in our view, the economy may have peaked and is expected to grow at a moderate pace in 2018 partly due to the high base despite being supported by investment, major infrastructure projects and exports. We maintain our forecast of 5.5% GDP for 2018. Following the rate hike in the month prior, BNM is expecting inflationary pressure to ease in 2018, underpinned by stronger ringgit which will mitigate import cost. Our base case for the USD/MYR is 3.88-90 at end-period with the average hovering around 3.92–3.94, there is room for the MYR to muscle through our base case fair value to reach 3.78-80 with an average of 3.80–3.82, which is our best case. Much will be supported by both the global and domestic activities. We believe another rate hike in 2018 is still on the table if the economic data continued to beat expectations. At the current level of the OPR, the stance of monetary policy remains accommodative. We believe the normalisation rate is around 3.50%.

• In line with our expectation, the 4Q2017 GDP print stood at 5.9% y/y from 6.2% y/y in 3Q2017, beating market consensus of 5.7%. This brings the 2017’s full-year GDP of 5.9%y/y to fall in-line with our expectation from 4.2% in 2016.

• The economy in 4Q2017 was driven by the surge in government spending of 6.9% y/y from 3.9% and favourable private consumption growth of 7.0% y/y from 7.2% in 3Q2017.

• The overall performance from the supply side of the growth model was supportive, with firm growth in agriculture up 10.7% y/y compared to 4.1% previously underpinned by higher production of palm oil, which negates the dip in the mining sector, down 0.5% y/y from 3.1%. Meanwhile, construction, manufacturing and services grew steadily at 5.8% y/y, 5.4% y/y and 6.2% y/y from 6.1% y/y, 7.0% y/y and 6.6% y/y respectively in the previous quarter. .

• Hence, in our view, the economy may have peaked and is expected to grow at a moderate pace in 2018 partly due to the high base despite being supported by investment, major infrastructure projects and exports. We maintain our forecast of 5.5% GDP for 2018.

• Following the rate hike in the month prior, BNM is expecting inflationary pressure to ease in 2018, underpinned by stronger ringgit which will mitigate import cost. Our base case for the USD/MYR is 3.88-90 at end-period with the average hovering around 3.92–3.94, there is room for the MYR to muscle through our base case fair value to reach 3.78-80 with an average of 3.80–3.82, which is our best case. Much will be supported by both the global and domestic activities.

• We believe another rate hike in 2018 is still on the table if the economic data continued to beat expectations. At the current level of the OPR, the stance of monetary policy remains accommodative. We believe the normalisation rate is around 3.50%.

Source: AmInvest Research - 15 Feb 2018