RHB: Malaysia's real GDP growth at 5% in 2018-2019

KUALA LUMPUR: RHB Research expects Malaysia's real gross domestic product (GDP) to grow at five per cent this year and next year, slower than the 5.9 per cent achieved in 2017 due to weakening external demand.

In a note, RHB Research Economist, Vincent Loo Yeong Hong said slowing global economic activities would likely weigh on Malaysia's external demand for its exports.

“Among the emerging market and developing economies, growth prospects are also becoming more uneven amid rising oil prices, higher interest rates in the United States, escalating trade tensions and market pressures on the currencies of some economies with weaker fundamentals.

“Amid a weaker growth outlook and escalating US-China trade tensions, we project Malaysia's real exports to decelerate to 3.5 per cent for 2019 from four per cent estimated for this year, while import growth is expected to pick up to 3.5 per cent from 3.1 per cent over the same period,” he added.

On the current account, Loo expects it to rebound and register a larger surplus of RM45 billion or 2.9 per cent of GDP for 2019, from an estimated RM39.3 billion or 2.7 per cent of GDP this year, as the cancellation/deferment of mega infrastructure projects would cap the import of machinery and materials for construction work.

On the currency front, the ringgit is expected to remain weak in the coming weeks before settling at RM4.10 against the greenback by end-2018.

“The ringgit fell further by 0.9 per cent against the US dollar to a nine-month low of RM4.1465 in the first week of September, adding to the 1.1 per cent depreciation in August.

“While emerging currency markets have experienced greater volatility recently following the Turkish lira crisis, we expect the contagion effect on other emerging market currencies to be somewhat limited and volatility to subside eventually, after investors have adjusted to the new expectation on US Federal Reserve (Fed) fund rates,” Loo said.

Going forward, the research house expects headline inflation to pick up to two per cent in 2019, from an estimate of 1.2 per cent for 2018 (2017: +3.7 per cent) as prices readjust after the replacement of Goods and Services Tax with the Sales and Services Tax, and also due to the low base-effect following a three-month tax holiday that would dampen inflation in 2018.

On the Overnight Policy Rate, RHB Research expects Bank Negara Malaysia to keep it unchanged at 3.25 per cent for the rest of the year and into 2019, as this would help ensure the stability of the ringgit versus the US dollar, against the backdrop of ongoing monetary tightening by the US Fed.

“Further out, global growth has started to slow, while the trade war between the US and China will likely have an adverse impact on global trade going forward. Under such circumstances, the US Fed may be forced to slow down its pace of rate hikes next year,” Loo said. - Bernama