PETALING JAYA: AllianceDBS Research has downgraded Malaysia’s 2016 growth forecast to 4.5% in 2016, from 4.7% previously, mainly due to subdued private consumption, which represents more than half of the gross domestic product (GDP) next year.
The research house said private consumption is expected to ease to 3.3% next year, down from 5.6% forecast for 2015, on account of impact from inflationary pressures recently as well as persistent high indebtedness among households and businesses.
Softer private consumer spending is anticipated on the back of rising costs of living driven by the Goods and Services Tax implementation, weaker ringgit, continued subsidy rationalisation and the recent hikes in highway tolls and train fares.
“On that count, we expect inflation to spiral upwards to 3.0% next year, from an estimated 2.1% in 2015,” AllianceDBS said.
Nonetheless, it said investment spending will continue to support economic growth, especially with some new infrastructure projects that are expected to be rolled out under the 11th Malaysia Plan.
“The impact from poor consumption on GDP is expected to be cushioned by some recovery in export activities, which will likely benefit from second half-year recovery in the economies of major trading partners as well as the boost from a weaker ringgit against the US dollar.”
Moving forward, it said slower recovery in commodity prices including crude oil and global economies as well as divergent monetary policies among major economies will set the backdrop for the domestic economy in 2016.
However, capital market and ringgit volatility should subside by mid-year, especially after some confirmation on the US rate hike.
On the fiscal front, the government’s ability to pump prime, in the worst case environment, is limited amid its commitment to prudence and consolidation of the federal government account.
However, in the light of the recent fall in crude oil prices to below US$40 (RM172.80) per barrel, the government may face hurdles in achieving its 3.1% fiscal deficit target in 2016.
“Despite slowing economic growth, we expect Bank Negara Malaysia to have limited flexibility in easingthe overnight policy rate from the current 3.25% given the weak ringgit.”
It said the latest Bloomberg consensus data indicates that the ringgit exchange rate will range between RM3.96 and RM4.62 per US dollar in the first quarter of 2016.
“Until domestic confidence sentiments rebound and the overhang of international monetary policy uncertainties settle, the ringgit is likely to remain under pressure,” it said.