Economic conditions to improve in second half of 2016

Economic conditions to improve in second half of 2016

KUALA LUMPUR, Feb 26: Malaysian Rating Corp Bhd (MARC) expects economic conditions to improve in the second half of the year with a slight rebound in oil prices.

“Oil prices will slightly rebound and become more stable in the second half of the year. All these indicators point towards an improved sentiment in terms of the economic condition of the country. I believe in the second half of the year, all the other sectors will follow in tandem,” CEO Mohd Razlan Mohamed told reporters at the MARC Investor Briefing yesterday.

Although MARC expects loan growth to taper to 7% this year from 7.9% last year, Razlan said the situation where banks are curbing their loan growth will be reversed should oil prices stabilise and improve slightly in the second half of the year.

MARC chief economist Nor Zahidi Alias said the oil price is bottoming right now. He expects the oil price to range between US$30 and US$40 per barrel this year.

“The downside risks of oil prices are not that much anymore because fundamentally you can see that demand is not that bad. If you look at demand, especially expectation that demand from the US is picking up, even for China it is picking up,” he said.

“If you look at China, car sales are picking up quite strongly. And don’t forget India, they have added about 300,000 barrels per day in 2015. The demand from India is about one-third that from China but it is still quite decent,” he added.

Nor Zahidi also said improved external demand in the second half of this year would have a positive impact on Malaysia’s exports.

MARC assistant vice president for ratings Sharidan Salleh said the slower loan growth expected this year, coupled with net interest margin compression and potential rising credit costs, will continue to weigh on the banking sector’s earnings but banks are expected to remain profitable, barring a severe economic downturn.

He expects banking sector liquidity to remain tight despite the recent cut in the statutory reserve requirement.

On the plantation sector, assistant vice president for ratings Yap Lai Ken said crude palm oil (CPO) output is expected to remain flat with the reduction in yields from the lagged effects of the 2015 haze and the current El Nino phenomenon compensated by an additional output from maturing palms.

At the same time, overall demand will increase marginally from global population growth and increased usage in mandatory biodiesel blending in Malaysia and Indonesia, she added.

MARC has a stable outlook for the plantation sector and has upgraded its view on the average selling price of CPO to RM2,350 a tonne for 2016 from RM2,150 for 2015.

The rating company maintained its 2016 gross domestic product growth and ringgit range projections at 4.4% and RM3.95-RM4.15 respectively.

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