KUALA LUMPUR, May 25 — The Malaysian auto industry is expected to recover gradually in 2017 on the back of an improved economy and strong infrastructural spending, BMI Research said in a statement today.

The Fitch Group unit said it expected Malaysian autos production to begin a modest growth of 1.4 per cent and totalling 557,315 units despite higher production costs brought about by the weak ringgit.

Breaking down this forecast, passenger vehicle (PV) production will rise 1.4 per cent totalling 510,743 units while total commercial vehicle (CV) output will increase 1.2 per cent reaching 46,572 units.

"This uptick in vehicle production will largely be driven by a recovery in domestic demand for both PVs and CVs over the course of the year,” the group said.

"That said, we expect a still weak ringgit to act as a headwind to domestic vehicle manufacturing by placing upside pressure on production costs”.

Since majority of the country’s autos production are geared towards servicing the local market, a robust domestic market is expected to revive vehicles sales and improve manufacturing as demand soars. Only around five per cent of vehicle production in Malaysia is exported.

BMI said it forecasted total vehicle sales to grow 1.8 per cent in 2017 reaching 590,369 units with PV sales expected to rise by 1.8 per cent while CV sales at 1.5 per cent.

It added that the forecast was supported by data up to April this year, which showed total vehicle production rose 0.7 per cent y-o-y, reaching 175,665 units.

BMI Country Risk team said it expects Malaysia’s economy to recover from the market slowdown in 2016 with forecast real GDP growth of 4.7 per cent in 2017 aided by a recovery in oil prices and electronics exports.

"We believe that an improving economic picture will lead to a rise in consumer and business confidence in 2017 and, as a consequence, will support a rise in spending on big-ticket items such as new PV and CV purchases, which will bolster domestic production of these vehicles,” the group said.

It added data are already showing signs of an improvement in consumer and business optimism in Malaysia with business confidence rising significantly from 81.2 in Q416 to 112.7 in Q117 while consumer confidence grew firmly to 76.6.