Friday 29 Mar 2024
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KUALA LUMPUR: Weak ringgit and commodity prices, sputtering global demand, and uncertainties in the domestic political scene — all these will continue to dog Malaysia’s gross domestic product (GDP) growth for the second half of the year and cause growth to further decelerate, said economists.

This is after the country’s second quarter 2015 (2Q15) GDP growth weakened to 4.9% compared with 1Q15’s 5.6%, mainly due to lower exports and weak domestic consumption — even though it was still above consensus’ expectations of 4.5%.

UOB Research, for one, has trimmed its growth projection for the country this year to 4.8% from 5% previously, and to 4.8% for 2016 (from 5.3% previously). “Going forward, we expect growth to slow further as consumers and businesses turn cautious with the sharp weakening of the ringgit and vulnerabilities in the form of volatile capital flows when the Fed (US Federal Reserve) raises interest rates,” it said.

It also noted that the ringgit led the decline in Asian currencies on Wednesday as it fell by more than 1% against the greenback and breached the 4.0 mark for the first time since the Asian financial crisis.

“Today the pair pulled back temporarily below 4.00 alongside a recovery in regional currencies. However, we do not rule out another leg higher to 4.05 just yet,” it said.

The research firm expects major projects to be announced in Budget 2016, which is to be tabled on Oct 23, but these would likely only kick off in the second half of next year (2H16), meaning catalysts will only be seen then.

Morgan Stanley Research, meanwhile, said Malaysia’s three-legged growth model of commodities, manufactured exports, and the public sector economy are expected to continue to face pressure. The research firm said that export momentum has been subdued, and a turnaround in the global economy to help provide some export tailwind is still being sought.

CIMB Group Holdings Bhd chief executive Tengku Datuk Zafrul Tengku Abdul Aziz also weighed in and said the banking group expects growth in the 2H15 to be softer as weak global growth, especially China, could provide strong headwinds.

He said Malaysia’s economic fundamentals remain strong, but noted that the ringgit is undervalued. At the time of writing, the ringgit was 4.0107 against the US dollar.

 

This article first appeared in digitaledge Daily, on August 14, 2015.

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