‘STRONG ECONOMY LIFTS MALAYSIA’S CREDIT PROFILE’

Rating agency maintains country’s sovereign rating at ‘A3’

MALAYSIA’S economic strength represents the strongest pillar underpinning its credit profile, said Moody’s Investors Service.

The credit rating agency expects the economy to grow by 5.6 per cent this year before slowing to 4.7 per cent next year, mostly due to slower growth of exports and private consumption.

Last month, it maintained the country’s sovereign rating at “A3”, saying the credit profile remained resilient despite external vulnerabilities.

It pointed out that the pick-up in global demand since late last year had helped growth in the trade-reliant economies in the Asia-Pacific region.

The export growth in a number of economies, including Taiwan, Malaysia and Hong Kong, had outpaced the global average.

Besides, the strength of investment in Hong Kong and Malaysia in the first half of this year represents a turnaround from the relative weakness of the preceding two years.

“We expect exports and private consumption to cool on weaker demand for electronic exports, and government expenditure to rise at a more gradual pace.”

The impact on its overall creditworthiness would be limited since Malaysia’s economic strength is at a “Very High” level, it added.

For Hong Kong, public infrastructure investment and rising housing supply were the main drivers.

“For Malaysia, the acceleration in gross fixed-capital formation reflects the ongoing implementation of large infrastructure projects such as mass rapid transit lines in the capital, as well as export-oriented projects in electronics manufacturing and petrochemicals.”

In both cases, stronger investment combines with accelerating exports, but the former is not a spillover effect of the latter.

Wage growth, partly due to civil servant salary increases and government transfers to low-income households, have supported spending.

Strong public infrastructure spending in Malaysia and Hong Kong would ensure a more broadbased economic growth than other trade-dependent economies, added Moody’s.

Support to sovereign credit profiles would be strongest where the export upturn combines with structural reforms and investment in infrastructure, it said.

“The world’s biggest economies are recovering, at the same time giving a boost to trade. Among them, China and Japan have been contributing to the global pick-up, supporting regional demand.”

Some of the Asian economies that do not benefit from the pickup in global demand, such as Thailand, might end up depending on additional fiscal stimulus to support their economies.