PETALING JAYA: The Malaysian Rating Corporation Bhd (MARC) is forecasting a real gross domestic product (GDP) growth of 4.3% in 2020 below the government forecast of 4.8% due to weaker external trade performance and softer domestic demand growth.
In a press release today, MARC said although trade diversion arising from trade tensions between the US and China could marginally benefit Malaysia in the short term, the overall weakening of global trade growth will continue to weigh on Malaysia’s export sector.
“Forward indicators suggest a lacklustre outlook, i.e. a continuing downtrend of the export orders index of US manufacturing Purchasing Managers’ Index (PMI) and a continuing contraction in global semiconductor sales.
“Domestically, Malaysia remains largely dependent on its consumer support which in the first three quarters of 2019, contributed circa 93% of headline growth. MARC does not think that this is sustainable and the latest statistics are already showing increasing cautiousness among consumers, judging from recent consumer surveys,” it said.
The rating agency also foresees private consumption growth to soften to 6.5% in 2020.
Meanwhile, MARC expects headline inflation numbers to rise modestly to an average between 1.2%-1.7% assuming that the abolishment of fuel price ceilings takes place this year.
On the ringgit, MARC said it will be affected by the risk of a slower GDP growth, expectations of lower overnight policy rate (OPR) due to the slowing economy, ability to achieve the fiscal targets against the backdrop of slower growth, and decisions by FTSE Russell on the possible exclusion of Malaysian government bonds in its global index.
“The upside risk of ringgit lies in the possibility of softer US dollar due to the widening current account and budget deficits, as well as the weaker US economy,” it said in its statement.
MARC went on to state that it believes that Bank Negara Malaysia (BNM) is not likely to be influenced by recent moves by regional central banks to reduce their policy rates, but rather the trend in the ringgit will be a crucial factor in determining BNM’s future moves.
On the fiscal front, the rating agency noted there are already efforts by the government to become more flexible in its stance.
“Notwithstanding this, the balancing act between supporting growth and ensuring a continuing fiscal consolidation effort is becoming more challenging, especially at a time when global growth is weakening.
Nevertheless, MARC believes the greater transparency about the government’s total liability and efforts to address it, are a positive factor for Malaysia’s overall sovereign rating assessment,” it said.
Going forward, MARC believes the rating would be maintained at the current level of A-/A3.
