RAM projects GDP to grow 4.9 pct in 2018

KOTA KINABALU: RAM Ratings continue to project a gross domestic product (GDO) growth of 4.9 per cent for 2018 and 4.5 to five per cent for 2019 – lower than the 5.9 per cent achieved last year.

This reflects the lingering spillover effects of the US-China trade war on the external front, along with less infrastructure investment and lower publicsector spending on home ground in the near term.

“The latter includes RAM’s expectation that the Government will not favour any expansionary fiscal policy until its finances improve.

“Nonetheless, we expect Budget 2019 to provide better insight on the new administration’s plans.

“These are pivotal to the formulation of RAM’s final growth projections for 2019,” noted Kristina Fong, head of research.

Amid the government’s limited fiscal space, modest inflation and the need to balance the opposing pressures of growth deceleration and capital outflow bias, we envisage Bank Negara Malaysia to remain relatively dovish on monetary policy in 2019, by leaving the OPR unchanged at 3.25 per cent.

Reflecting on this forecast, Esther Lai (head of Sovereign Ratings) said the country’s economic fundamentals have traditionally been a key rating strength, and remain so.

“As the expected slowdown in GDP growth is transitory rather than structural, we do not envisage this to affect Malaysia’s sovereign ratings.

“On the other hand, the Government’s plans and ability to stem any deterioration in its fiscal position will be crucial to its ratings in the medium term.” The Malaysian Government carriesgA2/StableandseaAAA/ Stable ratings by RAM.

As it stands, it is clear that the Government is keen to streamline its expenditure; it has set its sights on large public concessions and projects, in line with its pre-election manifesto.

In this respect, the construction, toll roads and power sectors – where government involvement and payments are key features – have come under the spotlight. These sectors account for a significant chunk of the debt capital market’s outstanding bonds/sukuk.

As such, any action by the government could have farreaching consequences on the capital markets’ appetite for the funding of infrastructure development. “For this reason, we believe that the government will strike a balance between its intentions and any potential impact on the market,” explain Davinder Kaur and Chong Van Nee, co-heads of Infrastructure and Utilities Ratings.

Of the three aforesaid industries, the construction sector has felt the most notable turnaround in fortunes. The new administration has cancelled, renegotiated and/or deferred more than RM140 billion of construction projects, with more likely to come.

This has cast a shadow over this sector, which had previously benefitted from public-sector largesse. Amid the uncertainties over jobreplenishment prospects and the expected pressure on margins (from closer scrutiny and less favourable terms), we have a negative outlook on this sector.

Besides the construction sector, four others also carry a negative outlook: automotive, commercial properties, media and oil & gas (O&G) support services.