Goldilocks economy

THE sentiment on the Malaysian economy may not be so positive, but it is far from entering a recession.

In the words of Deputy International Trade and Industry Minister Ong Kian Ming, “a recession is nowhere on the horizon for the Malaysian economy”.

While the World Bank has lowered the country’s gross domestic product (GDP) growth forecast to 4.7% in 2019, it remains higher than the average estimated growth of 4.2% for the emerging market and developing countries.

Malaysian manufacturers also remain upbeat on growth prospects, looking into 2019. Despite the jitters caused by the Nikkei Purchasing Managers’ Index hitting its record low for December 2018, about 17% of manufacturers expect output to be higher this year.

In comparison, Nikkei says only 4% of the firms surveyed predict lower volumes.

“Driving optimism were positive demand forecasts, new product launches and planned project work. Overall, confidence improved to its strongest level in four months,” it says.

Not only that, the fund-raising activities in the domestic debt market will likely be sustained above the RM100bil-mark.

Maybank Kim Eng points out that Malaysia’s underlying economic and credit condition is “still conducive for fund-raising activity”.

“We forecast a gross private debt securities supply of RM100bil in 2019 as compared to RM104bil last year. The use of government-guaranteed bonds will continue, given fiscal constraints and the need to fund major infrastructure projects.

“Refinancing could also drive issuances, given higher bond maturities in 2019. The relaxation of rules on retail access to the bond market may also open up a new segment of demand and supply,” says the research house.

Besides that, Malaysia’s current account surplus of the balance of payments is expected to widen in 2019, according to RHB Research Institute analyst Vincent Loo.

He foresees the current account surplus hitting RM38.8bil or 2.5% of GDP this year, up from 2.2% in 2018.

“This is on the back of lower imports of goods and services, following the deferment of infrastructure projects,” states Loo. For context, the Finance Ministry expects Malaysia to achieve a current account surplus within the range of 2% to 3% in 2019.

Private-sector expenditure, particularly household spending, is anticipated to be the key driver of economic growth amid the moderating economic growth.

In late November 2018, Bloomberg ranked Malaysia first on its top emerging market list on the back of its current account surplus, relatively stable economic growth outlook and valuations.

The country has beaten Russia and China and is ranked much higher than other regional economies such as Thailand and Indonesia. This raises confidence on the domestic economy, despite signs of a growth slowdown.

The oil and gas (O&G) sector, which is expected to recover this year, will also be an important catalyst for the economy.

With more O&G activities expected from national oil producer Petroliam Nasional Bhd and higher Brent crude oil prices this year, local O&G players stand to benefit significantly. This will raise confidence in the industry and could spur further capital expenditure by the companies.

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Economy , Malaysian economy , Ong Kian Ming