KUALA LUMPUR: Malaysia’s gross domestic product (GDP) growth target of 4.8% for 2020 could be “challenging” to meet, says OCBC chief economist and head of treasury research & strategy Selena Ling.
Speaking to the media today at OCBC’s 2020 economic outlook briefing, Ling said the government’s target makes the assumption that there will be no further escalation between the US and China.
“We are a little bit cautious, as we think 4.8% is a bit challenging, because it would assume that everything falls into place nicely.”
As such, Ling said OCBC’s house forecast for GDP growth is expected to be only within the range of 4.2% to 4.4% this year.
“We assume because of that, global growth has a chance to recover. Manufacturing and trade in particular will do better than in 2019 and China will not be pushed to take drastic measures to counter pressure from the US,“ she said.
She noted that if China is more stable, then there will be a follow on effect through the rest of Asia, providing a more calm and stable market environment. However, she cautioned that should any of these assumptions change, there is a risk of slippage.
Last month, Finance Minister Lim Guan Eng said Malaysia was maintaining its GDP growth target of 4.8%, despite a downward revision by the World Bank from 4.6% to 4.5%, due to weaker-than-expected private investment and export growth recorded at 0.3% and 1.4% respectively in Q3 2019.
With regard to exports, Ling said that while the latest exports numbers in November 2019 showed a contraction of 5.5% year-on-year, there is still hope that with the easing of tensions between the US and China, global trade flow may pick up and help Malaysia’s exporters.
“Indeed, after months of languishing in contractionary territory, Malaysia’s manufacturing sector PMI has finally broken even, printing at 50-flat level for December 2019 readings. If the improvement sustains itself, this should bode well for the exports sector overall.”
She added that exports growth may recover to 4-5% this year.
On the ringgit, Ling said Malaysia has managed to gradually build up its foreign exchange reserves, thanks to favourable capital flows.
At the same time, the supportive environment has added to the recent strengthening of the ringgit against the dollar. OCBC expects the ringgit to reach 4.04 against the greenback by year-end.
Overall, Ling said global market sentiment has been encouragingly supportive towards emerging markets and Malaysia specifically.
“The global low rates environment, anchored by a relatively dovish Fed, still supports flows into sovereign bonds. Foreign holdings of Malaysian Government Securities now stand at 41.6%, the highest since 2018. This stability should provide a helpful backdrop for BNM to ease monetary policy when needed,” she added.
However, Ling said there is a good chance that the central bank will make one 25 basis points cut within the first half of the year, but if needed, it could go up to 50 basis points.
Ling says OCBC’s house forecast for Malaysia’s GDP growth this year is within the range of 4.2% to 4.4%. – AMIRUL SYAFIQ MOHD DIN/THESUN