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Market Research Report

Malaysia Country Risk Report Q1 2020

Published by Fitch Solutions, Inc. Product code 203083
Published Content info 79 Pages
Delivery time: 1-2 business days
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Malaysia Country Risk Report Q1 2020
Published: October 25, 2019 Content info: 79 Pages
Description

Key View:

We are revising our 2019 real GDP growth forecast to 4.6%, from 4.2% previously. The revision reflects the stronger-than-expected average growth rate of 4.7% y-o-y in H119, as well as our view for private consumption to remain strong and for the deceleration in investment growth to bottom out. However, we expect net exports to drag on overall growth over the second half of the year, with exports likely to remain anaemic and imports likely to pick up along with investment. Malaysia's current account balance is likely to remain under strong external pressure from slowing global growth, which has been exacerbated by elevated tariffs between the US and China. However, we expect the goods balance to be supported by declining imports over the coming months, with the exchange rate acting as a natural adjustment mechanism. This should see the current account remain in surplus over the coming quarters. While Malaysia is still vulnerable to capital outflows during periods of risk-off sentiment, this vulnerability has been diminished by an improving liabilities composition in its international investment position. Our rate forecast for 2019 remains at 3.00% for 2019 and is now 2.75% for 2020 (revised down from 3.25% previously). The effect of growth headwinds from higher US-China tariffs should feed through in 2020 and slow growth, providing a motive for rate cuts. Inflation is likely to remain subdued in 2020 on account of lower crude oil prices and Malaysia's relative insulation from the African swine fever pandemic.

We maintain our average ringgit forecasts for 2019 and 2020 at MYR4.15/USD and MYR4.25/USD, respectively, due to continued uncertainties from the US- China Trade War. Our view for sustained weakening in 2020 is based on our expectations of a US-China trade deal not being reached before the presidential elections in November 2020. Risks to our forecasts are weighted to the upside, due to the potential for a trade deal and tariff relief before November 2020, as well as geopolitical risks in the Middle East pushing up crude oil prices.

We at Fitch Solutions expect the sex scandal allegedly involving Economic Affairs Minister Azmin Ali to remain a key source of disquiet for the ruling Pakatan Harapan coalition. This scandal, as well as Prime Minister Mahathir Mohamad's unilateral appointment of Latheefa Koya as Malaysia's anti-corruption chief, will likely intensify the rivalry between supporters of Anwar Ibrahim and those of Azmin, especially within the coalition's largest party, Parti Keadilan Rakyat. While our core scenario is still for Anwar to succeed Mahathir, we expect the situation to worsen in the absence of more concrete signals that the succession plan is intact and will be adhered to.

Major Forecast Changes:

We have revised our 2019 real GDP growth forecast to 4.6%, from 4.2% previously.

Key Risks:

Malaysia's economy is relatively well diversified and not particularly at risk from external shocks. The largest threat to the Malaysian economy comes from a rapid unwinding of the household credit boom that has taken place over the past few years since the global financial crisis. This has the potential to result in a collapse in domestic demand amid declining property prices. This is not our core view, however, as debt service ratios remain manageable at current levels.

Table of Contents
Product Code: CFMY_20200101

Table of Contents

Executive Summary

  • Core Views
  • Major Forecast Changes
  • Key Risks
  • Country Risk Summary
  • Economic Risk Index
  • Political Risk Index
  • SWOT
  • Economic - SWOT Analysis
  • Political - SWOT Analysis
  • Economic Outlook
  • Economic Growth Outlook
  • Revising Growth Upwards On Brightening Investment Outlook
  • GDP By Expenditure Outlook
    • TABLE: GDP GROWTH FORECASTS
    • TABLE: PRIVATE CONSUMPTION FORECASTS
    • TABLE: GOVERNMENT CONSUMPTION FORECASTS
    • TABLE: FIXED INVESTMENT FORECASTS
    • TABLE: NET EXPORTS FORECASTS
  • External Trade And Investment Outlook
  • Current Account To Remain In Surplus Amid Trade War
  • Outlook On External Position
    • TABLE: MAIN IMPORTS & EXPORTS
    • TABLE: MAIN IMPORT & EXPORT PARTNERS
    • TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
    • TABLE: CURRENT ACCOUNT BALANCE FORECASTS
  • Monetary Policy
  • Bank Negara Malaysia To Cut Rates In 2020
  • Monetary Policy Framework
    • TABLE: MONETARY POLICY FORECASTS
  • Structural Fiscal Position
    • TABLE: MAIN EXPENDITURE AND REVENUE CATEGORIES
    • TABLE: FISCAL AND PUBLIC DEBT FORECASTS
  • Currency Forecast
  • Malaysian Ringgit To Weaken Into 2020 Amid Trade War
    • TABLE: CURRENCY FORECAST
  • THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information with Fitch Solutions Macro Research.Malaysia Country Risk Q1 2020Contents10-Year Forecast
  • The Malaysian Economy To 2028
  • Long-Term Real GDP Growth To Slow To 4.4%
    • TABLE: LONG-TERM MACROECONOMIC FORECASTS
  • Political Outlook
  • Domestic Politics
  • Continued Tussle Over Succession To Mar Politics
    • TABLE: POLITICAL OVERVIEW
  • Long-Term Political Outlook
  • Electoral Politics To Remain Uncertain
  • Operational Risk
    • TABLE: OPERATIONAL RISK
  • Economic Openness
    • TABLE: TARIFF AND NON-TARIFF TRADE BARRIERS
    • TABLE: FREE TRADE AGREEMENTS
    • TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
    • TABLE: BARRIERS TO FDI
  • Utilities Network
    • TABLE: ELECTRICITY RISKS
    • TABLE: FUEL RISKS
    • TABLE: TELECOMMUNICATIONS RISK
    • TABLE: WATER RISKS
  • Global Macro Outlook
  • Downside Revisions To Stabilise Somewhat, But Policy Risks Remain
    • TABLE: GLOBAL MACROECONOMIC FORECASTS (2018-2023)
    • TABLE: DEVELOPED MARKETS - REAL GDP GROWTH, % y-o-y
    • TABLE: EMERGING MARKETS - REAL GDP GROWTH, % y-o-y
  • Index Tables
    • TABLE: MALAYSIA - MACROECONOMIC DATA AND FORECASTS
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