Malaysia’s GDP growth likely to return to 4.6-5.0% range in 2020: UBS economist
In this article (5)
Malaysia’s real gross domestic product (GDP) growth is likely to return to the 4.6-5% trend range in 2020 as economic drag diminishes, said UBS Investment Bank economist Edward Teather. He said the impact of the trade war and the government’s institutional reforms should go from drags on growth to net positive contributions to the country’s economy this year.
“Pakatan Harapan’s institutional reforms and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) membership would improve prospects in 2020.
“Malaysia is also a key potential beneficiary of the CPTPP trade deal,” he said during a conference call on global and Asian 2019 outlook.
However, he said, Malaysia might lose some potential gains if it decided to pull out of the trade deal and this would impact GDP growth next year.
“Without CPTPP, there will be less potential to be tapped; but it’s possible without the deal, the government would consider liberalisation, introducing more transparency and level playing field between private companies,” he said.
Teather said trade war, slower China growth and institutional reform and fiscal consolidation policy initiatives would continue to drive the weakness in growth in the near term.
Hence, he said, UBS expected Malaysia’s growth to be at 4% this year from the estimated 4.7% in 2018.
“Malaysia is also a key potential beneficiary of the CPTPP trade deal,”
“2019 will likely be a case of pain before gain. First, we expect Malaysia to be impacted by trade war-related disruption, but also to be well placed to subsequently take market share from China in the United States,” he said.
Meanwhile, Teather expects the ringgit to fall to the RM4.40 level to the US dollar this year before improving in 2020. Malaysia being an open economy, the ringgit was pressured by the lower trade growth, he said.
“Exports, in dollar terms, rose 10% in 2018 and would only grow 1% in 2019. So it’s quite a strong slowdown and that is partly because of lower oil prices and less demand for products and components,” he added.
On the Overnight Policy Rate (OPR), he said Bank Negara Malaysia (BNM) may leave interest rates on hold throughout 2019.
“Soft growth should allow BNM to look at acceleration in inflation driven by the change from the goods and services tax to the sales and service tax in 2018 and fuel subsidy reforms.
“In early 2020, better growth momentum, confidence in CPTPP and trade war-linked supply-chain adjustments in Malaysia’s favour could lead to a 25-basis point rate hike by BNM,” he said.
He forecast the US Federal Reserve would raise its benchmark interest rate once this year, in September, and that the Brent crude to hover at US$65 per barrel this year and US$73 per barrel in 2020.
Questions & Answers
Q.What factors are expected to contribute to Malaysia's improved GDP growth in 2020?
What factors are expected to contribute to Malaysia's improved GDP growth in 2020?
Economic drag from the trade war and government reforms should diminish, becoming net positive contributions. Pakatan Harapan's institutional reforms and CPTPP membership are also expected to improve prospects.
Q.How might Malaysia's decision on the CPTPP trade deal affect its economy?
How might Malaysia's decision on the CPTPP trade deal affect its economy?
If Malaysia pulls out, it might lose potential gains, impacting GDP growth. However, without the deal, the government might consider liberalisation, transparency, and a level playing field for companies.
Q.What is the forecast for Malaysia's ringgit performance against the US dollar?
What is the forecast for Malaysia's ringgit performance against the US dollar?
The ringgit is expected to fall to RM4.40 to the US dollar this year before improving in 2020. This is partly due to lower trade growth, with exports slowing significantly in 2019.
Q.When might Bank Negara Malaysia consider raising the Overnight Policy Rate?
When might Bank Negara Malaysia consider raising the Overnight Policy Rate?
BNM may leave rates on hold throughout 2019 due to soft growth. However, better growth momentum, confidence in CPTPP, and trade war-linked supply-chain adjustments could lead to a 25-basis point rate hike in early 2020.
Reader pulse
What is your outlook for Malaysia's retail market in 2020?
19,089 votes so far