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Malaysian economy to continue on steady growth path: Analysts

17 Feb 2019 / 21:11 H.

PETALING JAYA: Malaysia’s economy is expected to remain on a steady path in 2019 but with greater power due to the fiscal commitment to reduce wastages and improve the delivery system, an important ingredient to achieve a more efficient economy, according to PublicInvest Research.

“We are cautiously optimistic that the trade war will be over, which may lead to the normalisation of global trade and a rally in global asset prices where the spillover effect will be immense for Malaysia,“ it said in a report, referring to the US-China trade spat.

PublicInvest is projecting Malaysia’s 2019 gross domestic product (GDP) to grow at 4.9%.

It expects Bank Negara Malaysia’s Overnight Policy Rate to remain unchanged in 2019 in view of the muted risk to growth. The dynamics may change, however, should growth prospects start to dim unexpectedly and the 4.0%-level could be the trigger point.

Meanwhile, TA Research opined that the Malaysian economy will continue to rely on sustainable domestic demand and maintained its 2019 GDP growth forecast at 4.8% year on year.

“But, there could be more downside pressure to this forecast should the expected improvement in external sector does not materialise in the 1Q19 as we expect the full negative effect from higher tariffs previously will only appear in 2H19,” the research house said.

It reiterated that the volatility in the external environment may post challenges for trade outlook as a result from current trade war and slowdown in global growth.

TA believes it will be difficult for the US and China to resolve their trade disputes within the current tight deadline, given the challenge of US demands for structural reform in China to address several issues such as intellectual property protection, forced technology transfers and state subsidies favouring domestic companies.

Although Malaysia is highly exposed to global headwinds due to high total trade to GDP ratio, it opined that the economy would find support from robust domestic activities mainly private consumption and investments.

Among the positive vibes that are expected to sustain growth includes higher household earnings, continuous assistance from the government (with targeted cash aid and petrol subsidies) as well as accommodative lending stance.

TA noted that private sector demand will continue to be the main driver of growth as private consumption growth is expected to expand due to continued income and employment growth while private investment is anticipated to grow supported by capital spending in technology-intensive services and manufacturing in line with Industrial Revolution 4.0.

On the currency front, PublicInvest said it is unperturbed by the ringgit’s protracted volatility as this is being caused mostly by external developments, a situation not unique to Malaysia.

“The ringgit is supported by strong fundamentals amid favourable growth prospects and positive current account surplus. We see these as the impetus for ringgit to rebound towards its fair value.”

As the US is committed to only two interest rate adjustments in 2019 against four in 2018, capital outflows may slow down and eventually normalise in 2019. Ringgit may also benefit materially should trade negotiations end up favourably.

“Nonetheless, the ringgit may continue to face inherent risks from limited policy space and limited upside for oil, leading us predict the ringgit to average between RM4.10-4.20 per dollar in 2019. We are not too concerned with this prospect as ringgit is still backed by steady fundamentals that may be a conduit for its reversal. The ringgit’s oversold position is mainly due to external factors, chiefly the trade collision and volatile oil prices.”

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