KUALA LUMPUR (Dec 9): Global investment bank Nomura has cut its gross domestic product (GDP) growth forecast for Malaysia in 2017 to 3.7% from 3.9% previously as the country’s source of resilience is starting to fade, and will likely be exacerbated by the considerable uncertainty over President-elect Donald Trump’s trade policies.

In a conference call with the media today on the outlook for Asia in 2017, Nomura said that Malaysia is being downgraded in the research house’s league table from ‘neutral’ to ‘laggard’.

“Malaysia has been relatively resilient over that period despite strong headwinds from low commodity prices and local political noise. However, these headwinds are likely to persist while the economy’s resilience is approaching its limits,” Euben Paracuelles, Nomura’s economist for Southeast Asia said.

He mentioned that Malaysia’s manufactured exports, which have outperformed in recent years thanks to demand from US, could be undermined by a more inward-looking stance under Trump, which could have a negative spill-over effect on domestic demand.

“Policy space is now more limited in Malaysia as the government is committed in its fiscal consolidation, making it the responsibility of the monetary policy to support growth. However, the relative high vulnerability to capital outflow risks, in part due to the high foreign ownership in the bond market, will constrain any rate cuts in the absence of large FX reserve buffers,” he said.

Nomura expects Bank Negara Malaysia to be biased towards supporting growth and a 25 basis points (bps) rate cut is likely to be seen in the first quarter of 2017 and another 25 bps rate cut in the last quarter of 2017.

While Nomura expects Prime Minister Datuk Seri Najib Razak to remain in power, with the ruling Barisan Nasional coalition possibly winning a larger majority in Parliament, the associated political uncertainty will add to rising external risks and should therefore act as a drag on GDP growth.

For 2018, Nomura think the improvement for Malaysia will be limited and revised downwards its GDP growth projection to 3.7% from the previous forecast of 4.2%.