News & Articles Malaysia's growth prospects expected to moderate next year
Malaysia's growth prospects expected to moderate next year
15 Dec 2015
Malaysia's growth prospects expected to moderate next year.
Stable market: Volatility in Malaysia’s capital market and the exchange rate of the ringgit against the greenback are expected to subside by the middle of next year.
Stable market: Volatility in Malaysia’s capital market and the exchange rate of the ringgit against the greenback are expected to subside by the middle of next year.
Malaysia’s growth prospects are expected to moderate next year, as private consumption would likely slow on account of inflationary pressure and an uncertain global economic environment, Alliance Research says.
The brokerage has cut its gross domestic product (GDP) growth forecast for the country for 2016 to 4.5%, from 4.7% previously, due mainly to subdued private consumption, which represents more than half of Malaysia’s economy.
Alliance Research, however, maintained its 2015 growth forecast for Malaysia at 5%, which it said would be well within the Government’s target of 4.5% to 5.5%, despite the subdued global demand and falling commodity prices.
Moving forward, slower recovery in commodity prices including crude oil and global economies as well as divergent monetary policies among major economies will set the backdrop for the domestic economy in 2016,” Alliance Research chief economist Manokaran Mottain said.
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“Private consumption is expected ease to 3.3% next year, down from the 5.6% projected for 2015, on account of impact from inflationary pressures recently as well as persistent high indebtedness among households and businesses,” he added.
According to Alliance Research, Malaysia’s consumer price index (CPI), which is a gauge of inflation, would likely increase to 3% in 2016 from the estimated 2.1% this year.
“Softer private consumer spending is anticipated on the back of rising cost of living driven by GST (goods and services tax) implementation, weaker ringgit, continued subsidy rationalisation and lastly, the recent hikes in highway tolls and train fares,” Manokaran explained.
“Nonetheless, investment spending will continue to support economic growth, especially as some new infrastructure projects are expected to be rolled out under the 11th Malaysia Plan,” he noted.
In addition, he said, the impact of slower private consumption on Malaysia’s GDP would likely be cushioned by some recovery in exports activities, which would likely benefit from the expected recovery in the economies of its major trading partners by the second half of 2016, as well the weak ringgit against the US dollar.
Alliance Research said it expected volatility in Malaysia’s capital market and the exchange rate of the ringgit against the greenback to subside by the middle of next year, especially after some confirmation in the US interest rate hike.
“On the ringgit, latest Bloomberg consensus data indicates that the currency’s exchange rate will range between RM3.96 and RM4.62 per US dollar in the first quarter of 2016,” Manokaran pointed out.
Given the weak ringgit, he noted that Bank Negara would have limited flexibility to ease the overnight policy rate from the current 3.25% despite slowing economic growth.
On the fiscal front, Manokaran said the Government’s ability to pump prime, in the worst-case environment, would also be limited, given its commitment to prudence and consolidation of federal government account.
“In the light of the recent fall in crude oil prices to below US$40 per barrel, the Government may face hurdles in achieving its 3.1% fiscal deficit target in 2016 (down from the targeted 3.2% this year),” he said.
He added that the ability to pump prime would also be constrained by the Government’s debt, which had been rising over the years. As of the first half of 2015, Malaysia’s government debt-to-GDP ratio stood at 54%, which was just marginally below the Government’s self-imposed ceiling of 55%.
Stable market: Volatility in Malaysia’s capital market and the exchange rate of the ringgit against the greenback are expected to subside by the middle of next year.
Stable market: Volatility in Malaysia’s capital market and the exchange rate of the ringgit against the greenback are expected to subside by the middle of next year.
Malaysia’s growth prospects are expected to moderate next year, as private consumption would likely slow on account of inflationary pressure and an uncertain global economic environment, Alliance Research says.
The brokerage has cut its gross domestic product (GDP) growth forecast for the country for 2016 to 4.5%, from 4.7% previously, due mainly to subdued private consumption, which represents more than half of Malaysia’s economy.
Alliance Research, however, maintained its 2015 growth forecast for Malaysia at 5%, which it said would be well within the Government’s target of 4.5% to 5.5%, despite the subdued global demand and falling commodity prices.
Moving forward, slower recovery in commodity prices including crude oil and global economies as well as divergent monetary policies among major economies will set the backdrop for the domestic economy in 2016,” Alliance Research chief economist Manokaran Mottain said.
ADVERTISEMENT
“Private consumption is expected ease to 3.3% next year, down from the 5.6% projected for 2015, on account of impact from inflationary pressures recently as well as persistent high indebtedness among households and businesses,” he added.
According to Alliance Research, Malaysia’s consumer price index (CPI), which is a gauge of inflation, would likely increase to 3% in 2016 from the estimated 2.1% this year.
“Softer private consumer spending is anticipated on the back of rising cost of living driven by GST (goods and services tax) implementation, weaker ringgit, continued subsidy rationalisation and lastly, the recent hikes in highway tolls and train fares,” Manokaran explained.
“Nonetheless, investment spending will continue to support economic growth, especially as some new infrastructure projects are expected to be rolled out under the 11th Malaysia Plan,” he noted.
In addition, he said, the impact of slower private consumption on Malaysia’s GDP would likely be cushioned by some recovery in exports activities, which would likely benefit from the expected recovery in the economies of its major trading partners by the second half of 2016, as well the weak ringgit against the US dollar.
Alliance Research said it expected volatility in Malaysia’s capital market and the exchange rate of the ringgit against the greenback to subside by the middle of next year, especially after some confirmation in the US interest rate hike.
“On the ringgit, latest Bloomberg consensus data indicates that the currency’s exchange rate will range between RM3.96 and RM4.62 per US dollar in the first quarter of 2016,” Manokaran pointed out.
Given the weak ringgit, he noted that Bank Negara would have limited flexibility to ease the overnight policy rate from the current 3.25% despite slowing economic growth.
On the fiscal front, Manokaran said the Government’s ability to pump prime, in the worst-case environment, would also be limited, given its commitment to prudence and consolidation of federal government account.
“In the light of the recent fall in crude oil prices to below US$40 per barrel, the Government may face hurdles in achieving its 3.1% fiscal deficit target in 2016 (down from the targeted 3.2% this year),” he said.
He added that the ability to pump prime would also be constrained by the Government’s debt, which had been rising over the years. As of the first half of 2015, Malaysia’s government debt-to-GDP ratio stood at 54%, which was just marginally below the Government’s self-imposed ceiling of 55%.
Source: Thestar.com.my