RAM projects resilient 5.3 pct GDP growth for Malaysia in 2015
KUALALUMPUR: RAM Ratings (RAM) has forecast resilient5.3 per cent gross domestic product (GDP) growth for Malaysia in 2015.
It said, the domestic economy remained robust in the third quarter of 2014 (3Q14), expanding slightly above RAM’s expectations at 5.6 per cent. RAM has also revised its full-year GDP growth forecast to 5.8 per cent this year.
According to RAM, in 2015, GDP growth is expected to come up to a robust 5.3 per cent, moderately lower than the 5.8 per cent anticipated this year and mainly premised on the continued resilience of domestic demand.
It said, private investment is expected to sustain a strong momentum and it is projected to achieve a double-digit growth of 11.6 per cent next year, on the back of strong foreign direct investment (FDI) and continued infrastructure development.
Private consumption is anticipated to stay resilient, with a forecast growth of 5.8 per cent despite the expected domestic headwinds from the rising cost of living next year, following the implementation of the Goods and Services Tax (GST) in April.
“Our analysis of the characteristics and spending patterns of an average household (with a mean level of income) indicates that the recently announced government measures – such as the revised staggered BR1M disbursement mechanism and the revision in personal income tax rates and bands – will help alleviate a significantportionoftheestimatedincremental expenditure on essential items, thus leaving fundamental demand intact,” RAM said.
As such, a shift away from discretionary items will be the main cause of the moderation in private consumption next year.
However, the resilience of consumer demand would largely depend on whether purchasing power can remain intact, especially for the more vulnerable low-wage segment, whose wages are not increasing in tandem with output growth and inflation, RAM viewed.
On the external front, export growth will moderate to 4.1 per cent amid weaker industrial output in the European Union (EU), especially in the periphery, and the expected deceleration in economic growth for major export
Our analysis of the characteristics and spending patterns of an average household (with a mean level of income) indicates that the recently announced government measures – such as the revised staggered BR1M disbursement mechanism and the revision in personal income tax rates and bands – will help alleviate a significant portion of the estimated incremental expenditure on essential items, thus leaving fundamental demand intact. RAM
markets such as China and Japan, it observed.
That said, RAM noted, forwardlooking indicators of demand for electronics and machinery and equipment in industrialised economies still appear positive, It added, this is expected to help mitigate significant downside risks to sustained growth in external demand.
In a report, RAM pointed out that Malaysia’s import growth would remain strong next year against the backdrop of the robust pace of investment activities, and is expected to come in at 4.8 per cent – similar to this year’s trend.
It said, construction activities are expected to lead growth in sectoral performance, expanding 10.4 per cent, in line with the ongoing infrastructure development.
Manufacturing would also be kept resilient, driven by broadbased demand from both domestic and external sources, to achieve a 4.6 per cent growth, it added.
Aside from that, RAM high- lighted, the most important turnaround in terms of sectoral output would stem from the mining sector, where the recovery in output due to new capacity is expected to accelerate growth to 3.2 per cent in 2015.
With the full list of GST zerorated goods and services now confirmed and a better indication of the Government’s subsidyrationalisation plans next year, RAM’s inflation forecasts have been revised marginally upwards to 4.1 per cent (premised on no revision in electricity tariffs) and 4.3 per cent (based on an increase in electricity tariffs) next year.
This will pose a risk to the resilience of domestic demand and hence RAM expects the Overnight Policy Rate (OPR) to be held at its current level of 3.25 per cent until at least the middle of 2015 when it becomes clearer whether the second-round effects of inflation will be manifested.
Given this, a 25 basis points increase in the OPR might be warranted in the second half of 2015 (2H15) if secondary inflationary effects are evident and pose significant downside risks to the sustainability of domestic economic growth, RAM noted.
It opined, the ringgit/US dollar exchange rate is expected to weaken to an average of 3.30 in 2015, driven by interest-rate expectations abroad and the continued flight to safe-haven assets amid the myriad geopolitical uncertainties.
Gross Malaysian Government Securities (MGS) issuance is expected to exhibit the same trend as this year, reaching RM100 billion to RM105 billion in 2015.
On the other hand, gross Private Debt Securities (PDS) issuance is expected to accelerate year-onyear (y-o-y), and is anticipated to clock in at RM90 billion to RM95 billion next year, fuelled by robust infrastructure development and other construction activities, RAM projected.
“Although 2015 will have its share of challenges, we remain cautiously optimistic on the pace of economic growth.
“Although we are circumspect about the prevailing downside risks, we are also hopeful that proper policy and surveillance will be sufficient to curb any significantly adverse impact on our economic resilience,” RAM concluded.