Allianz SE sees 4.2% GDP growth this year

KUALA LUMPUR: Allianz SE expects Malaysia’s real gross domestic product (GDP) growth to come in at 4.2% this year and 4% in 2017 compared with 6% in 2014 and 5% in 2015.
Chief economist Dr Michael Heise (pix) said Malaysia’s economic growth in 2016 and 2017 will edge down due to challenging external conditions in terms of foreign trade and capital flows as well as political uncertainties, while private consumption is expected to moderate to 4.5-5% this year.
“Tightening domestic financial conditions are expected to pose a risk to consumption growth as seen from slower loans growth,” he told reporters at a briefing yesterday.
Heise said the 5.3% growth in private consumption during the first quarter was a surprise, as loans growth in April had decelerated for the eighth consecutive month to 6.3%.
He said growth in 2016 and 2017 will be driven by consumption, supported by high rates of household formation and strong employment and sound private gross fixed capital formation.
Heise opined that Malaysia’s diversified economy, compared with other commodity exporters, would also contribute to real GDP growth this year and next year.
He said Malaysia’s economy should be able to withstand external shocks despite the slowdown, as can be seen in 2014 and 2015 when it outperformed Asean despite the shocks from oil and energy, slowdown in China and capital outflows in 2015.
“There were pretty strong headwinds but Malaysia coped pretty well. Over the years, it has increased its resilience,” he said, adding that policy makers have fended off the shocks quite positively.
Heise commended Bank Negara Malaysia’s (BNM) move to let the ringgit depreciate instead of using up reserves to prop up the ringgit, and not reduce the overnight policy rate (OPR), referring to the move as a good policy response.
He expects BNM to maintain the overnight policy rate for the rest of 2016, adding that there’s no need to push exports and the economy with monetary policy at the moment.
Heise added that monetary policy is stable, which is important for Malaysia’s credit worthiness on international markets.
“It is a very important factor of stability. I wouldn’t start to try to fine tune the economy with monetary policy as many other countries have done, without much effect,” he added.
Meanwhile, Heise said a Brexit would affect Malaysians investing in real estate in the UK, as the pound could depreciate as much as 20%.
“Some people say 20% is a probable number. It is very hard to quantify. But I would agree that it would be a substantial decline of the pound, maybe 10%, maybe even 15-20%, which of course would hurt the value of investments in real estate in London,” he said.
Heise said the real estate market would be hit by a Brexit as many investors would wait and see how the UK government would react, as there would be renegotiation of treaties and so on. However, the impact would not be huge on trade relations between Malaysia and the UK.
“It is an impact that will be felt but it is also a temporary impact. It could be felt maybe two years or three years and then things will normalise,” he added.