Malaysia Can Continue To Grow By Over 4% This Year

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KUALA LUMPUR, Jul 10 – Malaysia’s economy can continue to grow by over four per cent this year and 2017 if the country does not face unexpected and prolonged declines in export demand, said analysts.Malaysian Rating Corp Bhd (MARC) forecast Malaysia’s gross domestic product (GDP) growth for 2016 at 4.4% and the momentum to accelerate between 4.5% and five per cent in 2017. 

Meanwhile, the World Bank expects the country’s economy to grow by 4.4% in 2016 and 4.5% in 2017. ForexTime Vice President of Corporate Development and Market Research, Jameel Ahmad, said Malaysia’s economic fundamentals were still strong as reflected in GDP growth and inflow of foreign direct investments. He said 2016 was expected to see economic uncertainties that will lead to high volatility and investors will later in the year turn their attention to the US presidential election. 

“Bringing the subject back towards Malaysia, many have been impressed with how the economy has been able to handle external risks, including higher US interest rates, prolonged weakness in commodities prices, including oil, and slowdown in China’s economy,” Jameel told Bernama in an interview. 

However, one of the major risks to Malaysia that was not assessed was the ‘Britain exit’ referendum (Brexit), he said. He said Brexit was expected to have an impact on the country. The referendum to exit the European Union (EU) has defied market assumption that the United Kingdom will stay in the economic bloc it joined since 1973.

“There is a great deal of uncertainty over what is next, which means possible risk aversion in the markets. Malaysia is obviously an emerging market, meaning there could possibly be unexpected risks,” noted Jameel. Global markets are sensitive and the unexpected Brexit victory has created an unstable financial landscape, which might leave central banks’ directions unpredictable, he said.

“The potential for developed markets’ central banks to act, like the US Federal Reserve (Fed), to slow its pace of rate increases, could also play a key role in calming markets.  It is too early to tell either side and I think every investor out there is waiting for the shock of the EU referendum outcome to stabilise, and then for the Fed to indicate what this could mean to its intention (in raising interest rate),” said Jameel. 

MARC Chief Economist, Nor Zahidi Alias, said the current weakness in the world’s largest economy, US, was a transient phenomenon and will not lead to recession. He said while labour force participation rate has declined, other aspects of the labour market are holding well, like wage gains and non-farm payroll (NFP). He said the core inflation rate has also been about two per cent in the six months to May 2016.

UOB Bank Economist, Julia Goh, said trade-related countries like Malaysia, Singapore and Vietnam, were more exposed with the likelihood of slow global growth as a result of Brexit outcome, while China, India and Indonesia should be more resilient. She said that financial volatility to impact currencies but it was likely to get some relief from the delay in the Fed rate increases.

“We think given heightened near-term risks, the odds for Bank Negara Malaysia to ease monetary policy has increased. The timing of a cut was uncertain as it was hard to gauge Brexit’s immediate and longer term effects on Malaysia as events were still evolving amid several possible implications,” she said in a note. 

However, Nor Zahidi said, domestic demand was not likely to pick up significantly in the second half of 2016 although the recent uptick in consumer spending growth provided some comfort. He said global trade momentum remained anemic in the first half of 2016, although the rebound in commodity prices, particularly crude oil prices, has brought some hope that there was “light in the end of the tunnel” in the second half of the year. 

“We are less pessimistic about crude oil market in the second half of the year as lower global production will lead to a more favourable demand-supply dynamics. As such, we expect Malaysian exports to gain a slight momentum in the period (2H16),” he said. — Bernama

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