Malaysia’s economy stable despite external weaknesses, says Franklin Templeton

A construction site next to the Petronas Towers in Kuala Lumpur, January 26, 2015. The Malaysian economy is projected to grow from 5-5.1 per cent in 2015. — Reuters pic
A construction site next to the Petronas Towers in Kuala Lumpur, January 26, 2015. The Malaysian economy is projected to grow from 5-5.1 per cent in 2015. — Reuters pic

KUALA LUMPUR, July 15 — Malaysia still remains stable despite weaknesses coming from the external front, which includes the impact from lower oil prices and a possible flight to safe havens due to the situation in the eurozone.          

Franklin Templeton Investment Executive Director and Head Malaysia Fixed Income and Sukuk Hanifah Hashim said the external environment was likely to remain challenging over the near to medium-term due to the volatility in China’s market.

This, she said would affect business sentiment and continue to put pressure on commodity prices. 

“However, we expect Malaysia to remain resilient in macroeconomic terms.

“Growth will moderate but remain positive in terms of Gross Domestic Product

(GDP) growth, with low inflation and a sustained positive current account balance despite a challenging environment,” Hanifah said in a statement.

She also said the global investment management organisation foresees potential for setbacks in GDP growth over the next year or two, but believed growth could pick up again by mid-2016.

“Malaysia’s economic picture appears healthier over the longer-term as the impact of oil prices and the country’s fiscal deficit position could begin to narrow as planned,” said Hanifah.

She also said revenue derived from the Goods and Services Tax (GST) could be far better than forecasted.

In addition, the removal of the oil subsidy would likely have a positive impact on government revenue and moderate some of Malaysia’s fiscal deficit challenges.

Malaysia’s fiscal deficit trend has been narrowing to 3.5 per cent to the GDP in 2014 from 3.0 per cent in GDP in 2009, with prudent economic policy reforms contained in the Economic Transformation Programme.

“The government has since revised the fiscal deficit projection to a manageable target of 3.2 per cent of GDP for 2015.

“We believe the deficit trend will still be manageable — the fiscal deficit target of zero may be achieved by the year 2020,” said Hanifah.

She also pointed out that the ringgit continued to take a beating despite the upgrade of Malaysia’s sovereign outlook by Fitch Ratings Agency and stressed that the current downtrend was not reflecting the strong economic fundamentals.

“The currency’s slide has overshot on the downside due to the negative sentiment arising from challenges on the domestic front and external headwinds,” added Hanifah. — Bernama