KUALA LUMPUR (July 5): MIDF Research has lowered its forecast for Malaysia’s year 2016 gross domestic production (GDP) growth to 4.0%, following a cut in its growth forecast for the second quarter of 2016 to 3.9%.

In a note today, the research house said the leading indicator which provides a forecast of Malaysia’s economy two quarters ahead, fell 2.6% year-on-year, sinking to levels seen in 1997, 2000 and 2008.

However, it said the decline is rather gradual, compared to the sharp decline in prior crises.

“We believe that a prolonged economic slowdown is likely; hence we are revising our GDP forecast for 2Q16 from 4.2% to 3.9%, and for the full year 2016 from 4.4% to 4.0%,” said MIDF.

The research house also expects two cuts in Bank Negara Malaysia (BNM)’s overnight policy rate (OPR), amid uncertainties arising from the UK’s exit from the European Union (Brexit).

“We have previously expected one rate cut by 25bps in September 2016 by BNM, as the weak global trade activity could warrant BNM to support domestic economy via easing monetary policy.

“However, as Brexit is likely to cause further slowdown in the global economy, we are revising our OPR forecast to 2.75% by year-end 2016, reflecting two rate cuts in September and November 2016 by 25bps each,” it said.

Meanwhile, MIDF said a rate hike by the US Federal Reserve (Fed) is unlikely, considering the Fed previously indicated that there would be no rate hikes during volatile times.

In line with the revised expectations on U.S. interest rates, the research house revised its year-end forecast to 3.9500 against the U.S. dollar, as it expects investors to rebalance their portfolio into emerging market economies.