Nomura positive on Malaysia amid political uncertainties

KUALA LUMPUR: Nomura is bullish over Malaysia’s economic outlook and the ringgit’s strength for the remaining of the year, despite an imminent general election (GE).
Having previously forecast gross domestic product (GDP) growth of between 3.6% and 3.9% for the full year, Euben Paracuelles, senior economist of Nomura Holdings Inc, has revised upwards his forecast to 5.3%, attributable to stronger exports, muted protectionism policy of US President Donald Trump, spillover effects from the decline in unemployment which in turn spurred private consumption and the toning down of inflation which peaked in March.
“Malaysia is looking fairly optimistic for the rest of the year, even though we are looking at political uncertainties,” Paracuelles said while alluding to the upcoming GE.
“There could be political noise but the other factors driving growth will be much more stronger i.e. exports, private consumption….” he added.
Speaking to reporters at a video conference on the economic outlook for the second half yesterday, Paracuelles, who expects the government to retain its mandate, said it will be positive for investors as fiscal reforms such as the Goods and Services Tax (GST) and subsidies rationalisation will be maintained.
However, he said unlike previous years, this year’s growth is unlikely to be supported by fiscal policy and the government will have to tighten its fiscal spending if it is to stay within the 3% fiscal deficit of GDP target.
On the currency front, the ringgit, which was under pressure due to narrowing current account surplus and weakened commodity prices, is expected to appreciate on the back of pick up in exports and waning political noise. This despite more US rate hikes in sight, which bodes well for the greenback.
Nomura foresees the ringgit to end 2017 at RM4.32 against the US dollar, before strengthening to RM4.26 at the end of 2018.
Paracuelles said the likelihood of the central bank increasing the Overnight Policy Rate will depend on whether there is a build-up in debt levels.
“There are some signs if there is a pick-up in lending to households and purchases of securities, this is why we see the equity market doing well…I think Bank Negara will be watching that very closely and if that risk or financial imbalances show a more meaningful pick up as we go down in the next few months, I think that will also translate into BNM eventually raising rates,” he added.
Nonetheless, he does not foresee inflation as a contributing factor in decisions on interest rates.
“Inflation has peaked since March and we think it is going to progressively go down to the end of the year. From that perspective, Bank Negara is going to be comfortable with the current monetary policy settings,” Paracuelles opined.