Analysts remain conservative on Malaysia’s economic growth outlook

KUALA LUMPUR: Analysts remain conservative over Malaysia’s economic growth this year, as renewed Middle East geopolitical tensions have eclipsed the US-China trade deal optimism.

RHB Investment Bank Bhd head of Asean economics research Peck Boon Soon said although the trade fiasco between the US and China has come to a halt with the first phase of the long-awaited trade deal set to be signed on Jan 15, the research house is staying conservative on how things would pan out.

“There is no doubt that the trade tension between the US and China has eased, but we remain conservative at this time because the Middle East geopolitical tensions have actually worsened.

“That would push up crude oil prices and might have some negative implications on the global economy, including Malaysia’s exports,” he told Bernama.

Wouldn’t the rising crude oil prices spell good news for Malaysia given that the country is a net exporter of oil and gas? Peck agreed that it would contribute to the government’s coffers, thus allowing Putrajaya to increase spending.

“But the impact on the global economy would be even larger, which would affect our exports and the overall economic growth,” he added.

Hence, the research house is maintaining its gross domestic product (GDP) growth forecast for 2020 at 4.3 per cent compared with the GDP growth of 4.5 per cent projected for 2019.

Peck was responding to Finance Minister Lim Guan Eng’s remark on Sunday that the government is confident Malaysia’s economic growth would be be er this year compared to 2019 with the introduction of initiatives and measures to boost the economy.

Lim also said the government has identified five factors that would be catalysts for economic growth this year

-- rise in commodity prices, de-escalation in Sino-US trade tension, increase in government spending, institutional reforms and injection of funds into the market.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid agreed with Peck, believing that the external risks are real especially with regard to the ongoing trade war.

“And now, we have seen geopolitics taking a different turn with the recent air strike by the US which led to casualties among the Iran top officials,” he said.

Besides, Mohd Afzanizam pointed out, the recent global Purchasing Managers’ Indices were also still fluid, suggesting business sentiments are still guarded.

“The Institute for Supply Management Index for the US manufacturing sector fell to 47.2 points in December from 48.3 in November, so the global environment is still the main concern,” he said.

He added that the recent Malaysian export numbers which shrank 5.5 per cent year-on-year in November also indicated that the country was quite susceptible to global developments.

Meanwhile, Alliance DBS Research, which forecasts a 4.5 per cent growth for the GDP in 2020 versus 4.6 per cent estimated for 2019, expects this year’s growth to be supported by domestic demand, namely private expenditure, and the manufacturing and services sectors.

It believed the government’s fiscal reforms outlined in the 2020 Budget, especially the planned targeted fuel subsidy and short-term boost from the revival of mega projects such as the East Coast Rail Link, land reclamation works for the Penang Transport Master Plan and the Pan Borneo Highway, could generate economic activities and strengthen Malaysia’s private consumption and investment.

Nevertheless, the research house expects Malaysia’s economic growth to continue being driven by private sector activities in 2020, especially private consumption spending.

“This is supported by the government’s proposed initiatives and projects announced in Budget 2020, coupled with Bank Negara Malaysia’s monetary easing policies that could provide a sustainable boost to the economy next year,” it said in a note today.