Thursday 28 Mar 2024
By
main news image

KUALA LUMPUR (March 26): The following are the highlights of Bank Negara Malaysia (BNM)'s Annual Report 2018 and Financial Stability and Payment Systems Report 2018:

BNM projects 2019 GDP growth at 4.3% to 4.8%
The Malaysian economy is expected to expand by 4.3% to 4.8% in 2019, versus 4.7% in 2018, driven by domestic demand, amid the challenging global environment. Domestic demand will remain the anchor of growth, underpinned by continued expansion in private sector activity.

Growth on private consumption moderates to 6.6% in 2019 from 8.1% in 2018 (the fastest pace since 2012) and 7.0% in 2017.

Private investment to grow at 4.9% in 2019
The growth is at a slightly faster pace compared to 4.5% in 2018 and substantially slower than 9.3% in 2017 amid heightened uncertainty stemming from both external and domestic developments. However, firms, particularly in the export-oriented sectors, continued to increase production capacity and improve efficiency to meet demand.

Accommodative Monetary Policy in 2019
Monetary policy in 2019 will focus on supporting the steady domestic growth amid an environment of relatively low inflation.

The priority of the Monetary Policy Committee (MPC) would be to ensure that the stance of monetary policy remains accommodative and supportive of real economic activity amid relatively contained risks to inflation, said BNM.

Inflation seen averaging at 0.7%-1.7% in 2019
BNM sees Malaysia's 2019 headline average inflation to be broadly stable, averaging between 0.7% and 1.7%, compared with 1% in 2018 and 3.7% in 2017. The upward impact from cost factors are expected to be offset by lower domestic retail fuel prices.

Underlying inflation, as measured by core inflation, is expected to be sustained amidst the steady expansion in economic activity and in the absence of excessive demand pressure in 2019. Core inflation averaged at 1.6% in 2018, compared with 2.3% in 2017, amid smaller cost pass-through to retail prices and the absence of excessive demand pressures.

Narrower current account surplus in 2019
The country's current account is expected to be in surplus in 2019, albeit narrowing to between 1.5% and 2.5% of gross national income (GNI) compared with 2.4% of GNI in 2018.

Exports growth to halve in 2019
The exports growth will likely soften to 3.4% in 2019, from 6.8% last year, in line with the more moderate global economy expansion and trade activity.

BNM said exports will be significantly impacted by the ongoing US-China trade tensions, as this could directly lower demand from affected countries, and slow down production in global value chains.

Manufactured exports to grow at 4.8% in 2019
Manufactured exports are projected to expand by 4.8% in 2019, compared with 9.1% in 2018, supported by continued, albeit moderating demand from key trade partners.

Trade diversion to offset adverse impact of trade war
While the trade tariffs implemented so far are expected to lower Malaysia's export growth by 0.6-1.0 ppt in 2019, there could be some offsetting effects from trade diversion of US's imports away from China to Malaysia.

The potential for this to occur is more likely if these products already account for a significant share of US import market and manufacturers have the capacity to ramp up production. The trade diversion could therefore reduce the negative impact of trade tensions on export growth, potentially by about 0.1-0.4 ppt.

Wage and employment growth to augur well for household spending
No turbulence is expected for the labour market in 2019 as continued employment and income growth are underpinned by the steady expansion of the services and manufacturing sectors.

The unemployment rate is forecasted to hover around 3.3% to 3.5%, from 3.4% posted in 2018, while Malaysian workers are forecasted to see salary increments of between 4.9% and 5.4% in 2019. As a result of the continued employment and income growth, household spending will stand to benefit, as more people have higher disposable income.

Banks have 'ample' liquidity buffers to weather uncertainties
Malaysia's banking system has ample liquidity buffers to weather periods of uncertainties or to meet any potential exigent needs. The central bank said its stress tests continue to affirm banking system's resilience to a large reversal of capital flows.

The sufficient liquid assets is largely supported by stable funding sources comprising deposits and long-term borrowings. The banking system's loan-to-fund (LTF) and loan-to-fund-and-equity (LTFE) ratios have been sustained at levels around 80% and 70%, respectively.

Household debt grew 4.7% in 2018
Household debt grew at a slower pace of 4.7% in 2018 compared with 4.9% in 2017 and 5.6% in 2016. BNM noted the moderating growth is due mainly slower growth in loans extended by non-bank financial institutions (NBFIs).

Household debt remains elevated in 2018
Household debt remains elevated in 2018, although the household debt to GDP dropped marginally to 83% at end-2018 from 83.8% in 2017.

BNM, however, noted that risks to financial stability are mitigated.

Current macro-prudential measures implemented since 2010 have guided a more sustainable pace of growth in household debt, with debt in recent periods expanding more in line with income, it said.

Debt service ratios (DSR) for bulk of new household loans below 60%
DSR, which is defined as the ratio of total monthly bank and non-bank debt obligations to monthly disposable income, for the bulk (70%) of newly-approved loans have remained below 60%.

Mortgage a key contributor to household debt growth
Residential property loans remained the primary contributor to household debt growth, although lending has been curtailed by reduced housing affordability, particularly among low- to middle-income households.

BNM said the quality of household debt remained intact, with risks largely limited to loans for the purchase of higher-valued properties and personal financing.

About two-thirds of household borrowings are secured
About two-thirds of household loans are backed by property or securities, thus substantially reducing the net exposures of financial institutions to households.

External headwinds to continue weighing on investor sentiment in 2019
Uncertainties surrounding the pace of monetary policy normalisation in the US, escalating Sino-US trade tensions and rising geopolitical risks are still expected to continue weighing on investor sentiment in 2019.

While the domestic financial markets continued to experience bouts of volatility in 2018 due to both domestic and external developments, the central said orderly market conditions were preserved as domestic institutional investors stepped in to take advantage of attractive valuations.

For related stories, see:

      Print
      Text Size
      Share