Fitch cuts growth forecast for M’sia to 4.6%

PETALING JAYA: Fitch Solutions Macro Research has cut its growth forecast for Malaysia for 2018 and 2019, following a weaker-than-expected performance in the third quarter of the year.

The unit of rating agency Fitch Group now expects Malaysia’s gross domestic product (GDP) in 2018 to grow at 4.6%, compared with its previous forecast of 5.1%.

Fitch Solutions said it was also revising its 2019 GDP growth forecast for Malaysia down to 4.2% from 4.5% previously.

“The 2018 revision reflects the weaker-than-expected third quarter 2018 results and our expectations for growth to slow further in the fourth quarter,” it said in a statement.

“Malaysia’s growth in 2019 would likely be negatively impacted by broad-based headwinds from nearly all the expenditure components of the GDP, except private consumption, which we expect to be supported by a large, one-time repayment of tax refunds in 2019,” it added.

The country’s GDP growth for the three months to September 2018 came in at an annualised 4.4%, slightly down from 4.5% in the preceding quarter. This compared with a Reuters poll of 15 economists, whose median forecast was for a 4.6% growth for third quarter 2018.

The growth moderation represented the fourth consecutive quarter of GDP slowdown – and the slowest pace in two years – for Malaysia.

Fitch Solutions said the revision to the 2019 figure reflected its concerns about exports and investment growth for next year.

“We expect Malaysia’s 2019 external outlook to be negatively affected by the combination of a slowing semiconductor cycle and a likely escalation of the US-China trade dispute amid still-low palm oil prices, which should weigh on the country’s trade balance.

“Moreover, investment, particularly foreign investment, is likely to remain subdued due to continued policy uncertainty,” it said.

In light of the dimmer growth outlook and benign inflation prospects, Fitch Solutions said it does not expect the central bank to raise its overnight policy rate (OPR) next year.

“We no longer expect Bank Negara to hike its benchmark OPR by 25 basis points, in light of the weakening growth picture. Even after this revision, significant downside risks to our OPR forecast remain,” it explained.

“Inflation came in at a low 0.3% in September and is likely to remain subdued going into 2019 due to slowing growth and high base prices in 2018 as a result of the sales and service tax being less burdensome than the goods and services tax,” it noted.

This means real yields would likely remain supported in 2019 and help prevent a collapse of the ringgit, the defence of which would have been the main reason for the central bank to consider a hike.

“In fact, the likely buffer in real yields would give Bank Negara the space to even cut rates should the economic outlook sour significantly,” Fitch Solutions said.