KUALA LUMPUR: RAM Rating Services Bhd has maintained its positive outlook on the Malaysian economy, with another upward revision in gross domestic product (GDP) growth to 5.4% for this year.
The rating agency, in a statement on Friday, said the projection was slightly higher than the earlier expectation of 5.2%, mainly underscored by the upside from trade and investment.
RAM Ratings believed that the present upside experienced by the economy mostly stemmed from the recovery momentum, amid a pick-up in external demand, and the positive spillover triggered the domestic economy.
Although there are downside risks to both components, the resilience of domestic demand was still seen as the key driver of sustainable growth.
Private consumption would sustain a healthy growth of 6.7% this year, boosted by strengthening labour conditions and fundamental necessity-based consumption, it added.
“The expansion of private investment is expected to come in at 8% and will remain supported by the ongoing rolling-out of infrastructure projects. It will also receive an additional boost from increased capacity-building activities by firms, attributable to better business sentiment,” it said.
Meanwhile, economic resilience against external developments will be the real test for growth sustainability.
“Additional risks from key uncertainties such as Brexit developments (which are expected to affect the EU-wide investment decisions) and the slow roll-out of potential US tax reforms, as well as, investment initiatives across the Atlantic, could also dampen investment-type exports,” said the rating agency.
Export growth would still come in very strongly at 6.8% this year, driven by a robust first-half while import expansion was anticipated to be kept ahead underpinned by strong investment and export activities clocking in at 8.1% in 2017, it added.
“External developments can also affect the volatility of capital markets and exchange rates,” said RAM Ratings.
These included the normalisation of the US Federal Reserve’s policy rate and plans to pare down its balance sheet (to reverse the impact of quantitative easing), as well as, the slower-than- anticipated tightening by other major central banks such as the European Central Bank.
“With this, we expect the US dollar/ringgit exchange rate to average around 4.25-4.50 this year, at the higher end of our initial expectation of 4.00-4.50,” said the rating agency. - Bernama