KUALA LUMPUR: UOB Malaysia expects the country’s gross domestic product (GDP) to remain stable and expand at 4.8% for the full years of 2018 and 2019, not far off from Bank Negara Malaysia’s (BNM) projection.
UOB Malaysia’s senior economist, Julia Goh said the 2019 forecast has been revised to 4.8% from the 5% projection made earlier, after taking into account the potential impact of US-China trade tensions.
She noted that while Malaysia’s economy is not immune to external headwinds such as the trade tensions, rising US interest rates and commodity prices – Malaysia could certainly find support from its robust domestic private consumption and investment.
The growth projection is still within stable levels given the slowdown seen in regional economies, she added.
BNM projects Malaysia to chart 4.8% growth this year and 4.9% next year.
On the currency front, the ringgit is expected to stand at RM4.22 against the US dollar next year predominantly due to external factors such as the strength of the dollar, crude oil prices and the direction of China’s renminbi. At the end of 2018, the local unit is expected to remain at RM4.20 to the greenback.
Headline inflation for 2018 is expected to be 1.2% and 2% in 2019.
“I think it is actually slightly lower than the government’s official forecast. I think the main support for inflation is we are seeing resilient spending even with the reintroduction of the sales and service tax, we did not see any significant effect on the consumer price index,” Goh said at a media briefing roday.
“Key risk for inflation, I think, (will be) in the second quarter of next year where the government announced that they want to float oil prices. Based on current prices RON95 could be 30 sen more and that could have direct and indirect impact. I think that would be if anything a risk to inflation projection this year,” she added.
RAM Ratings said in a separate statement that inflation is expected to stand at 2.7% in 2019, mainly driven by additional pressure from the switch to targeted fuel subsidies, along with anticipation of continued spillover effects from the reintroduction of the sales and service tax and low-base effects during the tax holiday period. It envisaged inflation to average 1.0% in 2018.
According to Goh, exports are expected to grow 4-5% next year and imports 4%.
“Net trade small negative overall growth cushioned by supportive domestic demand. That’s why overall growth can be sustained at 4.8%,” she said.
This year’s growth was more subdued because of supply shocks and production disruptions in the agricultural and mining sectors, mainly crude palm oil and gas.
However, if supply disruptions dissipate, it could either enhance or mitigate such risk.
In reply to a question, Goh said the government fiscal deficit is expected to be at 3.4% next year.The widened fiscal deficit is a temporary diversion as the government is committed to repaying tax refunds and bringing some off-balance sheet items on record.
As for revenue in the form of dividend from Petroliam Nasional Bhd, Goh said the dividend is already locked in as it is based on oil prices this year which average US$72 a barrel. If crude oil prices slide consistently below the government’s assumption of US$72 a barrel, then there may be a need to recalibrate the Budget, Goh said.
Source: The Sun Daily