KUALA LUMPUR (Oct 3): Malaysia’s GDP growth may “fall below potential” in 2019, which increases the likelihood of monetary policy loosening, as private consumption — the country's only significant growth driver — moderates amid a "dim" investment outlook, according to Standard Chartered Global Research in a new report today.

Bank Negara Malaysia (BNM), it said, has adopted a “more cautious outlook on growth” despite maintaining a neutral stance at its policy meeting last month.

“The central bank dropped the phrase that investment ‘will be supported by ongoing infrastructure projects’ and cited downside risks to growth, including heightened trade tensions, prolonged weakness in the mining and agriculture sectors, domestic policy uncertainty and fiscal rationalisation,” the research house noted.

Hence, it believes growth drivers have shifted further towards private consumption from investment, it said, though it also posed the question, 'Malaysia — Will a single engine be enough?' in the report.

Private consumption is expected to moderate in the second half of 2018, partly from the reintroduction of sales and services tax (SST) in September. "Consumption also faces other headwinds, including a falling ratio of job vacancies to active job seekers (1.02 as of Q2-2018, down from 1.64x in Q3-2017), still-high household leverage and moderating property prices," it said.

Nevertheless, at this juncture, it expects private consumption to "remain robust thanks to a healthy labour market, with low inflation supporting real wages". So far, consumption has benefitted from year-on-year employment rise for the Jan-July 2018 period, as well as the June-August “tax-free period” amid GST zerorisation before SST’s re-introduction.

“Meanwhile, inflation is likely to exert less influence on monetary policy in the near term due to expected volatility in inflation prints (as a result of administrative measures) through late 2019,” it added, though it kept its 2019-2020 policy rate forecasts at 3.25%, unchanged from the present rate.

On bonds, the research house said it is "constructive on long-end Malaysia Government Securities (MGS)”. “Onshore investor demand remains strong on high consumer and business confidence, benefiting the bond market. Local long-term investors have high cash levels and are likely to accelerate their allocation to long-end MGS.”

On the ringgit, the research house maintained its neutral view. It expects the local note to trade range-bound against the US dollar and strengthen to 4.00 by end-2018. But it is expected to weaken to 4.10 at end-2019 and 2020.

“The currency remains undervalued and positioning is light amid foreign portfolio outflows. Nevertheless, broad-based weakness in emerging market sentiment may continue to weigh on the ringgit,” it said.

Last month, the research house cut its 2018 GDP growth forecast for Malaysia to 4.8% from 5.3% previously, with growth estimated at 5% next year. The nation’s GDP grew 5.9% in 2017.