KUALA LUMPUR, Oct 25 — Kenanga Investment Bank Bhd (Kenanga IB) has projected Malaysa’s gross domestic product (GDP) growth to weaken to 4.8 per cent in 2018 from 5.9 per cent in 2017 due to the ensuing trade war, end of the global tech upcycle, as well as a tightening global monetary policy environment.
The research house said while exports had begun to moderate on frail global trade flows, Malaysia’s 4Q18 GDP growth was expected to slow to 4.6 per cent following a stronger estimated growth of 4.9 per cent in 3Q18, helped by a boost from consumer demand due to the tax holiday between June and August.
“As a result, the GDP growth for the second half of 2018 (2H18) is expected to slow to 4.8 per cent from 4.9 per cent in the 1H18, bringing our full year GDP growth projection to 4.8 per cent,” it said in a note on Malaysia’s economic outlook 4Q18 today.
Domestically, Kenanga said the recent political changes which saw the new Pakatan Harapan government nixing key infrastructure projects, and removing the goods and services tax, would weigh on future investments and public spending.
“Hence, we expect GDP growth to remain subdued in 2019 at 4.7 per cent,” it said.
On the consumer price index (CPI), which measures overall inflation, the research house forecast the country’s inflation would remain subdued and grow between 1 and 1.5 per cent in 2018 compared with 3.7 per growth last year, and increase by 1 to 2 per cent next year.
“This is followed by a slowdown in the economy and the government’s decision to reintroduce fuel subsidy to peg the retail fuel prices at RM2.20 per litre and RM2.18 per litre for RON95 and diesel, respectively.
“While the reintroduction of the sales and services tax, along with the weak ringgit may exert inflationary pressure in the short term, we expect inflation to remain subdued on the back of slower domestic demand,” it said.
On the ringgit’s performance, Kenanga said it revised its year-end US dollar versus ringgit’s 2018 forecast to 4.15 level from 4.05 level earlier, and for 2019 to 4.10 level from 3.85 level earlier.
“The domestic capital market has experienced large outflows from the capital market since the surprise outcome of the general election in early May.
“As investors continue to digest the policy changes led by the new government administration, we expect deteriorating sentiments to limit capital flows in the coming months,” it said, adding that the recent US Federal Reserve’s interest rate hike and rising expectations for a faster pace of rate increase also offered further limited prospects for capital inflows.
Meanwhile, Kenanga expected Bank Negara Malaysia to continue adopting an accommodative stance and hold the overnight policy rate at 3.25 per cent for 2018 to ensure capital market stability, provide ample liquidity and more importantly, support growth.
“Unless the growth trajectory reverses on stronger domestic demand, a rate hike is unlikely,” it added. — Bernama
