Malaysia’s GDP growth to ease to 4.7% this year: Moody’s

Malaysia’s real gross domestic product (GDP) growth is expected to recede to 4.7% in 2019 after averaging at around the 5% mark between 2015 and 2018 on the back of external headwinds, according to Moody’s Investors Service. For 2020, the economy is projected to moderate further to 4.5%. The rating agency foresees external headwinds from trade protectionism to weigh on trade activity, while the review of infrastructure projects and slowdown in public spending will also prove to be a further drag to growth.

“Nevertheless, economic expansion will still stay stronger than the median average for A-rated sovereigns, even taking moderating growth into account,” it opined.

Moody’s said Malaysia’s credit profile, which is rated at “A3 Stable” reflects its large and diversified economy with healthy medium-term growth prospects, and relatively high government debt that is partly offset by a favourable debt structure and large domestic savings.

It pointed out that the govern-ment’s recent fiscal policy choices, particularly in abolishing the goods and services tax, will narrow its revenue base and reduce fiscal flexibility – while its debt burden which is significantly higher than the A-rated median, will remain a credit constraint.

“However, deep domestic capital markets and high savings provide a stable funding pool for the government’s debt, and partly offset these fiscal weaknesses. A solid institutional framework that includes effective monetary policy supports the country’s credit profile,” Moody’s said.

It also noted that pervasive corruption will likely to remain a challenge for the government, which will also undermine policy effectiveness.

Moody’s said that given a stable outlook of the sovereign rating, a change in the rating is unlikely in the near term, but could face upward pressure if the scope for fiscal consolidation increases.

Conversely, the rating agency said it would consider downgrading the sovereign rating in the event of weakened fiscal prospects, increased debt burden, growing political tensions and diverging views within the government, which could undermine policy effectiveness or impair the government’s ability to adhere to its fiscal consolidation objectives, potentially threatening the stability of capital flows to the country in the process.