MIER: Businesses still in cautious mood

KUALA LUMPUR: Malaysian Institute of Economic Research (MIER) recorded improvements in the business conditions index (BCI) for the second quarter of the year, but believes businesses are still cautious on their outlook due to several key events recently, which have created uncertainties in the market.
Last week, US Department of Justice announced the filing of two civil suits to seize properties worth US$1 billion (RM4.1 billion) linked to 1Malaysia Development Bhd (1MDB), which include penthouses, a private jet and proceeds from a Hollywood movie The Wolf of Wall Street.
“With the external Brexit and internal 1MDB issues that indirectly affect the confidence on ringgit, we expect to see an impact through our financial channel, including the stock market and exchange rate,” MIER executive director Dr Zakariah Abdul Rashid told a press conference during the 31st National Economic Briefing yesterday.
Zakariah said by taking into account these two major downside risks, he expects the local unit to ease to RM4.15 against the dollar by end of the year. The ringgit was quoted at 4.0820/0860 against the greenback yesterday.

Last year, it was the worst performing currency in the Asia-Pacific region, declining by almost 20% against the US dollar, due to weaker demand.
However, despite the weak global prospects, Zakariah said the research institute maintains the full-year gross domestic product (GDP) growth forecast at 4.2% this year, driven by better domestic demand following the Overnight Policy Rate cut.
“We expect about 3.3% of the GDP (growth) will come from domestic,” he added, noting that growth will be largely driven by private sector expenditures, as liquidity condition improves.
MIER had revised upward the domestic demand growth this year by 0.1% to 4.6%, from its April 2016 projection of 4.5%, due to improvement in private consumption.
Of note, MIER BCI registered a gain of 13.6 points to 106.4 in the second quarter of the year, surpassing the 100-point threshold, which indicates that manufacturing activities have rebounded.
MIER said, although overall global trade is expected to moderate further, the near-term demand for Malaysia’s exports is still healthy, which is in line with the increase in Industrial Production Index for May 2016. Longer term expectations have weakened however as downside risks to global growth lurks.