Moody's: Malaysia's long-term economic prospects remain favourable

KUALA LUMPUR: Malaysia's long-term economic prospects remain favourable given the country's structural strengths and diversified economy despite the revision of its 'A3' rating outlook to 'stable' from 'positive', said Moody's Investors Service.

In a note on Thursday, Moody's said the favourable prospects were due to Malaysia's well-developed infrastructure, substantial natural resources, globally competitive services sector and manufacturing base that would likely benefit from the country's improving trade linkages.

"The change in outlook reflects the deterioration in Malaysia's growth and external credit metrics due to external pressures over the past year, such as lower commodity prices," it said.

Moody's said the lower commodity prices had reduced government revenue, while undermining the country's external position, with large capital outflows, a falling current account surplus, sharp exchange rate depreciation and falling reserves.

"Like Oman and Peru, Malaysia benefited from the global commodities boom over the last decade, with palm oil, liquefied natural gas, petroleum and associated products of particular importance.

"However, because of its relative diversification, Malaysia's economy appears to be much more resistant to the commodities' downcycle when compared with its peers," it said.

Moody's said that in the two-year period between 2015 and 2016, it expected Malaysia's real gross domestic product (GDP) growth to average 4.7%, roughly in line with the average 4.8% rate recorded between 2001 and 2013.

On the oil and gas industry, Malaysia has sought to diversify its sources of growth away from upstream sector towards downstream activities, including refining and petrochemical processing, both of which somewhat benefited from lower oil prices.

"While Malaysia continues to work towards improving its external linkages, its economy has rebalanced towards domestic demand to drive economic growth. 

"This is mirrored in the decline in trade openness, as measured by the sum of both the exports and imports of goods and services as a share of GDP. This ratio has fallen gradually, registering 134.4% in 2015 from a recent high of 188.9% in 2005," it added. - Bernama