This article first appeared in The Edge Financial Daily on August 14, 2019
KUALA LUMPUR: UOB expects Malaysia to report a higher economic growth of 5% year-on-year for the second quarter (2Q) of this year, compared with 4.5% in the first quarter. In a research note yesterday, UOB said it is predicting a “decent rebound” in real gross domestic product (GDP) growth based on April to June indicators.
“This bucks the regional downtrend in growth and ahead of the Bloomberg consensus poll which estimates 4.6%,” said senior economist Julia Goh from UOB Global Markets and Economics Research.
“However, we doubt that this growth rebound is sustainable in view of intensifying global downside risks tied to trade tensions between major countries, a slower Chinese economy, the possibility of a no-deal Brexit [and a] potential credit default in Argentina, among others,” Goh added.
Bank Negara Malaysia (BNM) will announce the 2Q GDP growth rate on Friday. UOB maintains its 2019 full-year GDP growth forecast for Malaysia at 4.6% (BNM’s forecast: 4.3% to 4.8%) with domestic-oriented sectors as key anchors of growth.
“We think BNM is less likely to pursue another rate cut in the upcoming monetary policy committee meeting on Sept 12 despite the synchronised rate reductions by four central banks last week.
“BNM already made one pre-emptive 25bps (basis points) cut in May and is likely to wait for the outcome of the US Fed (Federal Reserve) rate decision [on Sept 18], US-China trade talks and Malaysia’s budget announcement [on Oct 11],” said Goh.
On the ringgit, Goh said the key anchor in the near term is the yuan, which she noted is prone to further weakness if the US-led tariffs on the remaining US$300 billion (RM1.26 trillion) of imports from China are implemented amid a lack of progress in negotiations. UOB sees stable foreign direct investment inflows and a sustained current account surplus providing some underlying support for the ringgit. It maintains its US dollar-to-ringgit forecast at 4.18 for end-2019, and 4.22 for the end of the first quarter of 2020.