KUALA LUMPUR, Nov 16 — RAM Rating Services Bhd (RAM Ratings) expects Malaysia’s gross domestic product (GDP) growth to ease to 4.6 per cent next year from the 4.7 per cent projected for 2018, mostly due to uncertain external demand and the sluggish pace of investment.

The rating agency said its Business Confidence Index (BCI) sub-index on investment sentiment showed a weaker trend for both domestic and export-oriented firms from the fourth quarter of this year to the first quarter of 2019.

“Additional cashflow relief from tax refunds to firms and other policies introduced to ease the cost of doing business next year are anticipated to facilitate the necessary ‘business as usual’ capacity expansion but not envisaged to spur any incremental investment beyond that,” it said.

Private investment growth is expected to be slightly lower next year at 4.1 per cent, slowing from the 4.6 per cent anticipated in 2018.

The burgeoning US-China trade war can potentially channel potential trade diversion and foreign direct investment relocation benefits to Malaysia, especially in the electrical and electronics sub-sector.

However, RAM Ratings said given the front-loaded restocking activities in 2018 ahead of the imposition of the major rounds of tariffs, these benefits may be preceded by short-term weakness in export performance and any upside would only be manifested in the later part of 2019.

“Export growth is projected to moderate to 1.3 per cent next year from the projected 1.6 per cent for 2018,” it said.

Private consumption will be the main contributor of domestic demand next year but at a moderate pace of 6.8 per cent as compared to 7.5 per cent projected this year as the labour market’s resilience is tested by the more challenging business climate.

Some reprieve is expected in the form of certain policy initiatives announced under the 2019 Budget, aimed at alleviating the Bottom 40 percent income group’s cost-of-living pressures which typically shows a higher marginal propensity to consume with additional income.

RAM Ratings said such a boost was expected to outweigh the impact from the additional taxes and levies on consumption such as the tax on sugary drinks, overseas travel levies and the increases for certain segments of the real property gains tax which would affect the general public and asset owners.

It said Bank Negara Malaysia’s (BNM) monetary policy next year was not expected to be significantly influenced by the accelerating of headline inflation which was expected to increase to 2.7 per cent in 2019 from one per cent this year amid the introduction of targeted fuel subsidies and continued Sales and Services Tax spillover effects.

“The delicate balance between growth and capital outflow pressures will remain paramount to BNM’s decision on the Overnight Policy Rate (OPR) in 2019,” RAM Ratings said.

The ratings agency said current OPR level of 3.25 per cent was considered optimal at this juncture and should lend some support to the US dollar versus ringgit exchange rate next year.

This persists amid continued pressure vis-à-vis capital outflows and more subdued growth prospects along with higher inflation and a narrower current account surplus of 2.5 per cent of GDP from 2.8 per cent in 2018.

“We expect the US dollar to ringgit exchange rate to average around 4.10–4.20 in 2019, slightly weaker than the 4.00 for 2018,” it added. — Bernama