The economy is likely to grow at a slower pace in the second half but remaining within the forecast range of between 5 per cent and 5.5 per cent for the full year, according to economists.
Economists surveyed by StarBiz said growth would likely be slower in the second half due to the high base effect experienced in the first half, largely due to the 6.2 per cent growth in gross domestic product (GDP) in the first quarter.
“Moving forward, we are not going to see a 6.2 per cent GDP growth figure as witnessed in the first quarter anymore. However, this does not mean that growth is going off, but it is a more stable and sustainable one,” said Hong Leong Investment Bank (HLIB) economist Sia Ket Ee.
Alliance Research’s chief economist Manokaran Mottain said he expected GDP growth in the second half to taper off and settle at 5 per cent, which he described as a “healthy growth pace”.
“It will likely slow down compared with the first half, with overall GDP growth in the first half settling at 5.8 per cent and 5.3 per cent for the full year.
"There are continued uncertainties in major export markets such as the United States and Europe, but China seems to be picking up again,” Manokaran said.
The Central Bank has forecast the GDP for the year to be between 4.5 per cent and 5.5 per cent.
He said a moderation in economic growth was healthy because it allowed for a correction in financial imbalances, especially property prices. “It will allow for sustainable economic growth, going forward,” he said.
Manokaran said domestic consumption could see a slowdown in inflationary measures such as the continued government rationalisation of its subsidy programme and electricity tariff adjustment that would eventually “trim off overall end-demand” from the consumer.
“Should interest rates go up, this will also curb overall net demand. It will not be so positive for consumer spending, moving forward. We are not likely to see GDP growth numbers as in the first quarter of the year,” he noted.
Meanwhile, HLIB’s Sia said that GDP growth in the first quarter was exceptionally high and expected the second half to see stable and sustainable growth.
“The boost from exports recovery to GDP will likely diminish in the second half, but I reckon that this can be recovered from domestic projects that are gaining momentum such as the refinery and petrochemical integrated development project in Pengerang, Johor,” Sia said.
HLIB is forecasting GDP growth of 5 per cent for the whole of 2014, which is at the lower end of the GDP growth range of 5 per cent and 5.5 per cent estimated by Bank Negara.
Affin Research, in a report, yesterday said that growth would likely slow down in the second half, with expectations of GDP growth averaging at 5.9 per cent in the first half, given steady domestic consumption and strong exports.
“Our estimates show that real GDP will likely expand at a gradual pace from 5.9 per cent in the first half to 5.2 per cent in the second half, and averaging around 5.5 per cent for 2014 as a whole, at the upper-end of the official forecast of between 4.5 per cent and 5.5 per cent,” Affin economist Alan Tan said.
On the outlook for the stock market for the second half of the year, RHB Research said in a strategy report that the market still had some upside potential on the possibility of earnings improvement and improved macro indicators, moving forward.
“We continue to envisage the market trending higher in the second half and maintain our end-2014 FTSE Bursa Malaysia KL Composite Index (FBM KLCI) target of 1,940 points, that is about 16.3 times 2015 earnings,” RHB Research’s head of research Lim Chee Sing wrote, maintaining his “neutral” stance on the market.
“Our 2014 net earnings per share growth for the FBM KLCI basket has been downgraded to a mere 1.5 per cent after the May results season and post-company visits, from 5.7 per cent previously.
"This is despite the strong GDP growth of 6.2 per cent in the first quarter, although we expect earnings to improve to 9.2 per cent in 2015,” Lim added.
RHB Research prefers growth stocks relative to defensive and dividend plays, given the returning economic growth that “is unlikely to be derailed”, with industry preference for plantation, oil and gas, construction, property and niche players with operations within the Sarawak Corridor of Renewable Energy.
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