KUALA LUMPUR (May 10): Malaysia's near-term growth is likely to stay at a healthy pace from exports and higher oil, says Morgan Stanley Research.

However, some growth moderation is likely as the pre-election boost to domestic demand tapers off, it added.

"As it may take some time for the new government to ease into position and lay out new policy outlines, the private sector may also adopt a wait-and-see stance on capital expenditure decisions in the near term," said Morgan Stanley Research in a report released today.

The research firm expects near-term growth to remain at 5.6% in 2018 from 5.9% in 2017.

"In our view, external conditions are favourable and growth momentum will likely remain supported by exports and higher oil prices in the near term. Specifically, we expect Malaysia's export momentum to benefit from a conducive external environment, as the global synchronous recovery continues for longer.

"Additionally, given Malaysia's status as the sole net oil exporter in Asia ex-Japan, the economy is also best positioned to benefit from a rise in oil prices. Recall that the 2018 budget assumes US$52 per barrel oil price, while Brent crude is tracking at US$76 per barrel, suggesting potential upside to government revenue and possibly spending.

Yesterday, the opposition coalition Pakatan Harapan (PH), including its ally Warisan, won 55% or 121 of the 222 parliamentary seats in the 14th General Election (GE14). This is the first time in Malaysia's history that an opposition coalition has won an outright majority number of parliamentary seats, which allows it the chance to form the next government. Meanwhile, the incumbent Barisan Nasional coalition won 36% or 79 parliamentary seats.

For the medium term, Morgan Stanley Research reiterated its view that Malaysia's structural story is not compelling and one of the weakest in Asean.

"On that front, the key is to raise productivity. The PH coalition has campaigned on several education initiatives, that is, free tertiary education at public universities and greater emphasis on technical and vocational education/training.

"We see these as steps in the right direction. The pace of structural reforms will need to quicken to lift medium-term growth potential," it added.

Following the GE14, Morgan Stanley Research said all eyes are on the handover to the new government.

"Given the 55% majority seats that the PH coalition has, any attempts by other parties to form a majority government would not only require the remaining parties and independents to form a coalition but also at least 10 MPs from PH to switch sides. We think this looks like a challenging set of conditions to meet," it said.