KUALA LUMPUR: RAM Ratings forecasts the economy to remain at a resilient 4.6% this year despite increasing global growth uncertainties amidst the protracted trade disputes the world over.
It said on Friday that in its mid-year review, it stood cognisant of the relative switch in fortunes of domestic and external demand.
The rating agency pointed out the recent escalation in the US-China trade war “is a negative turn of events for global growth sustainability”.
Of concern, it said trade protectionism and the use of both tariff and non-tariff barriers as bargaining tools have spread to other regions, evident in the current Japan-South Korea dispute, which also bears negative implications for the global trade outlook.
RAM Ratings said one of the key revisions to its initial assessment at the end of last year was the slowing of Malaysia’s trade growth going forward, with expectations for exports to increase by a marginal 0.5% (2018:2.2%) and imports to exhibit a slight contraction of 0.4% (2018:1.3%).
From the domestic demand perspective, indirect policy buffers such as the continuation of fuel price ceilings and a quick review of public sector projects have helped bolster resilience.
Although some labour market indicators point to more sluggish conditions looking ahead, both direct and indirect policy support should help keep private consumption activity on its steadfast growth trajectory to come in at 7.1% this year.
Private investment growth has taken a hit from economic uncertainties but pockets of support have emerged in the form of positive trade diversion effects, seen in a higher rate of FDI activity, as well the continuation of infrastructure-related investments after a quick review period following the 14th General Election.
“That said, ongoing expectations of weaker economic prospects are envisaged to hamper capacity-building activities. Hence, our expectation for private investment activity this year stands at a moderate 2.2% (2018:4.8%).
“Going forward, we expect the policy stance to stay supportive of growth, with potentially looser monetary policy and fiscal buffers at the ready.
“Potential moves on the Overnight Policy Rate (OPR) are anticipated to be largely data-dependent, in response to signs of significant downside risks to growth.
“Accordingly, we have maintained our expectation of the OPR ending the year at 3%, albeit also of the view that there is scope for further loosening if required. Another factor that may support further easing is benign inflationary pressure that has prevailed.
“Headline inflation is envisaged to come in at the same rate of 1% as it did last year, given prolonged fuel price ceilings as well as a lower than expected pass-through rate of the Sales and Services Tax introduced last September, ” RAM Ratings said.
Did you find this article insightful?