Friday 29 Mar 2024
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KUAL A LUMPUR (Nov 16): RAM Ratings expects Malaysia's GDP growth to ease to 4.6% in 2019, from 4.7% projected for 2018, mostly due to uncertain external demand and the sluggish pace of investment.

The agency said private consumption will be the main contributor for domestic demand in 2019, despite moderating to 6.8% (compared with 7.5% for 2018) as the labour market's resilience is tested by the more challenging business climate.

"That said, some reprieve will come in the form of certain policy initiatives announced under Budget 2019, aimed at alleviating the B40 group's cost-of-living pressures; this segment typically shows a higher marginal propensity to consume (MPC) with additional income.

"Such a boost is expected to outweigh the impact from the additional taxes and levies on consumption (such as the tax on sugary drinks, overseas travel levies and the increases for certain segments of the real property gains tax), which will affect the general public and asset owners," RAM said in a statement.

RAM said additional cashflow relief from tax refunds to firms and other policies introduced to ease the cost of doing business next year are anticipated to facilitate the necessary "business as usual" capacity expansion, but not envisaged to spur any incremental investment beyond that.

"As such, we expect private investment growth to come in slightly lower next year at 4.1%, slowing from the 4.6% anticipated in 2018," it said.

The rating agency said the most pronounced uncertainty stems from the external environment, although the US-China trade war could channel potential trade diversion and foreign direct investment relocation benefits to Malaysia, especially in the electrical and electronics sub-sector.

However, these benefits may be "preceded by short-term weakness in export performance" due the imposition of major rounds of tariffs, with any upside only manifesting itself in the later part of 2019.

Meanwhile, export growth is projected to moderate to 1.3% in 2019, from the projected 1.6% for 2018, said the agency.

RAM said although headline inflation is expected to accelerate to 2.7% next year (2018: 1%) amid the introduction of targeted fuel subsidies and continued sales and services tax spillover effects, it is not perceived to be a key determinant of any change in monetary policy.

"The delicate balance between growth and capital outflow pressures will remain paramount to Bank Negara Malaysia's decision on the overnight policy rate in 2019," it said, adding that the current level of 3.25% is considered optimal at this juncture.

This, the agency said, should lend some support to the US dollar-ringgit exchange rate next year. It expects the exchange rate to average around 4.10-4.20, slightly weaker than the 4.00 for 2018.

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