KENANGA Investment Bank Bhd (Kenanga IB) projected Malaysia’s gross domestic product (GDP) growth to weaken to 4.8% in 2018 from 5.9% in 2017 due to the ongoing US-China trade war, the global tech upcycle coming to an end, and a general tightening of monetary policies worldwide.

The research house said while exports had begun to moderate on frail global trade flows, Malaysia’s 4Q18 GDP growth was expected to slow to 4.6% following a stronger estimated growth of 4.9% in 3Q18, helped by a boost from consumer demand due to the tax holiday between June and August.

“As a result, the GDP growth for the second half of 2018 (2H18) is expected to slow to 4.8% from 4.9% in the 1H18, bringing our full year GDP growth projection to 4.8%,” it said in a note on Malaysia’s economic outlook 4Q18 today.

Domestically, Kenanga said the recent political changes saw the new Pakatan Harapan government nixing key infrastructure projects, and removing the goods and services tax which would weigh on future investments and public spending.

On the consumer price index (CPI), which measures overall inflation, the research house forecast the country’s inflation would remain subdued and grow between one and 1.5% in 2018 compared with 3.7 per growth last year, and increase by one to two% next year.

“This is followed by a slowdown in the economy and the government’s decision to reintroduce fuel subsidy to peg the retail fuel prices at RM2.20 per litre and RM2.18 per litre for RON95 and diesel, respectively.

“While the reintroduction of the sales and services tax, along with the weak ringgit may exert inflationary pressure in the short term, we expect inflation to remain subdued on the back of slower domestic demand,” it said.

On the ringgit’s performance, Kenanga said it had revised its year-end US dollar versus ringgit’s 2018 forecast to 4.15 from the previous 4.05, and the 2019 forecast to 4.10 from 3.85.

“The domestic capital market has experienced large outflows from the capital market since the surprise outcome of the general election in early May.

“As investors continue to digest the policy changes led by the new government administration, we expect deteriorating sentiments to limit capital flows in the coming months,” it said, adding that the recent US Federal Reserve’s interest rate hike and rising expectations for a faster pace of rate increase also offered further limited prospects for capital inflows.

Meanwhile, Kenanga expected Bank Negara Malaysia to maintain its accommodative stance and hold the overnight policy rate at 3.25% for 2018 to ensure capital market stability, provide ample liquidity and more importantly, support growth.

“Unless the growth trajectory reverses on stronger domestic demand, a rate hike is unlikely.” – Bernama

Malaysia approves RM61.6 billion in investments this year

MALAYSIA approved RM61.6 billion in investments from January to August this year in both foreign and domestic direct investments, up a whopping 52.47% from RM40.4 billion recorded in the corresponding eight months of 2017.

Deputy International Trade and Industry Minister Ong Kian Ming said the investments approved were in the manufacturing and non-manufacturing sector.

Out of the RM61.6 billion approved, foreign direct investment (FDIs) accounted for RM43.8 billion versus RM24.4 billion previously.

“The manufacturing sector continues to account for the largest share of investments approved, totalling RM49.8 billion, which is about 81% of total investments,” he said today after attending a luncheon talk on Malaysia: A New Hope, A New Beginning organised by the Malaysian International Chamber of Commerce & Industry (MICCI) in Petaling Jaya.

“This shows that investors’ confidence for the country has not changed after the 14th general election,” he said.

On Malaysia’s FDIs, Ong said the top investing countries were China with RM9.5 billion, followed by Indonesia (RM8.99 billion), the Netherlands (RM7.67 billion), the United States (RM2.94 billion), Japan (RM1.96 billion) and Singapore (RM1.18 billion).

“Malaysia is well positioned to attract more quality, high value-added investments that are non-polluting and can provide ample opportunities to local small and medium enterprises (SMEs) in creating high-paying and good quality jobs.

“We also need to focus on attracting new investments that can be part of the Industrial Revolution 4.0  framework and upgrade SMEs gradually, as not many of them will be able to achieve the true industry standards of IR 4.0 in the short term,” said Ong.

He was also optimistic that the government would be able to roll out new policies after the presentation of Budget 2019, including increasing transparency and making Malaysia a business-friendly country.

Meanwhile, on the ongoing US-China trade tensions, he said Malaysia was an attractive investment destination for companies from China following the trade tariffs imposed by the US, but noted that it would be selective as the country needed good quality investments. – Bernama