UOB maintains growth forecasts for Malaysia

KUALA LUMPUR: United Overseas Bank (Malaysia) Bhd (UOB Malaysia) is keeping its growth forecasts for Malaysia’s gross domestic product unchanged at 4.2% in 2016 and 4.5% in 2017 despite the outcome of the US presidential election, but highlighted that more clarity is needed on President-Elect Donald Trump’s policies to assess their precise impact on Asia and Malaysia.
Its economist Julia Goh said Malaysia’s economy will be fuelled primarily by domestic consumer spending.
“With the expansionary measures announced in Budget 2017, government stimulus announced earlier in the year, the OPR (Overnight Policy Rate) cut in July, we think domestic demand will still be the key driver of growth and these measures will help to provide support for domestic spending,” Goh told a media briefing on the economic outlook for Malaysia here yesterday.
However, she said, the potential effects from the US presidential transition could weigh on Malaysia’s growth. Mediocre global growth conditions and global geopolitical events will continue to pose downside risks to Malaysia’s growth path.
“The biggest uncertainty for Asia is in view that during Trump’s campaign trail, he pledged to renegotiate trade deals and he talked about scrapping the (Trans-Pacific Partnership Agreement), which could have direct impact on Malaysia,” said Goh.
She said if Trump is true to his words, countries like China, Korea, Japan, which have larger trade surpluses with the US, will be targeted with potential tariffs but what Asean and Malaysia will feel is the indirect effect.
Goh said what political candidates say in campaign trails and what they do in office can be different and hopefully there will be sufficient checks and balances in the US Congress if Trump decides to lean towards controversial extremes measures or policies.
The effect of China’s economic rebalancing, natural disasters and how Asia adjusts to lower growth prospects across advanced economies could also impact the country’s domestic growth negatively.
Against the global challenges, Malaysia will need to carefully manage the balance between monetary and fiscal measures to support growth, ensure stable inflation, manage financial risks and maintain fiscal prudence, Goh said.
UOB Malaysia expects the ringgit to trade at 4.15 against the US dollar by year-end and at 4.08 by mid-2017, supported by stable oil prices, a return of confidence following the US presidential election and the US Federal Reserve’s gradual approach to raising interest rates.
Goh expects a potential 25 basis point cut in the OPR in the next six months.