Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily, on November 17, 2015.

 

KUALA LUMPUR: Domestic demand, the main anchor of Malaysia’s economy, is likely to take a bigger hit next year, and not even public and private investments can help to offset the slowdown, said CIMB Research.

Domestic demand for the third quarter of 2015 (3Q15) grew 4% year-on-year, the slowest pace since 4Q09.

“Going forward, the impact of weaknesses in 2H15 (second half of 2015) on domestic demand could gather force. The wider impact of the goods and services tax (GST) (as more companies should be ordered to be GST-compliant), a weaker labour market, negative wealth effects and tighter access to credit are all factors that may depress private consumption expenditure further,” said CIMB director and chief economist Maslynnawati Ahmad in a report yesterday.

She said gross fixed capital formation is also unlikely to prop up domestic demand given its size.

CIMB is maintaining its projection for Malaysia’s gross domestic product (GDP) growth at 4.7% this year and 4.6% in 2016. So far, the three quarters this year produced an average 5.1% growth.

RHB Research Institute, meanwhile, is projecting GDP to grow by 4.8% this year and 4.5% in 2016.

As far as domestic demand is concerned, RHB economists Peck Boon Soon and Vincent Loo Heong Yong said they expect it to ease to a growth of 4.4% in 2016 — against a projected growth of 5.1% this year.

“The sharp depreciation of the ringgit, the aftermath of the implementation of the GST and measures to curb property speculation will likely continue dampening domestic demand in late 2015 and 1H16,” said Peck and Loo in a note last Friday.

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