Malaysia’s 2016 GDP growth forecast lowered

PETALING JAYA: MIDF Research has revised its 2016 gross domestic product (GDP) growth forecast for Malaysia from 4.4% to 4.0% due to the weak global outlook and expects two rate cuts by Bank Negara Malaysia (BNM) in September and November this year due to uncertainties arising from Brexit.
It said the leading indicator fell deeper into the red, shrinking by 2.6% year-on-year. Overall, the global economic outlook is becoming dimmer due to various economic and political uncertainties. It is expected that many businesses will opt a “wait-and-see” approach, leading to stagnancy in the economy.
“We believe that a prolonged economic slowdown is likely; hence we are revising our GDP forecast for 2Q16 from 4.2% to 3.9% and for the full year 2016 from 4.4% to 4.0%,” said MIDF Research.
The research house has previously expected one rate cut of 25bps in September this year by BNM, as the weak global trade activity could warrant the central bank supporting the domestic economy via easing monetary policy.
“However, as Brexit is likely to cause a further slowdown in the global economy, we are revising our OPR (Overnight Policy Rate) forecast to 2.75% by year-end 2016, reflecting two rate cuts in September and November 2016 by 25bps each,” said MIDF Research.
It is also amending the ringgit forecast due to revised expectations of a US interest rate increase. Recall that last year, the ringgit depreciated against the US dollar as investors expected the US Federal Reserve (Fed) to begin increasing its benchmark interest rate.
Although the pace of rate increase was slower than expected, the anticipation that the Fed would tighten interest rates lingered. However, since the “leave’ outcome of the UK’s referendum on membership in the EU, traders are no longer expecting the Fed to increase interest rates this year.
“We believe investors will once again rebalance their portfolios into emerging market economies, leading to appreciation of the ringgit. As such, we are revising our year-end ringgit forecast to RM3.95 per US dollar,” explained MIDF Research.
The research house has also revised its exports forecast to a 0.5% decrease year-on-year for 2016 but is keeping its inflation forecast for this year at 2.6%.