Fitch Solutions Lowers Malaysia Growth Forecast For 2018 2019

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Fitch Solutions Macro Research has lowered its GDP growth forecast for Malaysia for the year 2018 and 2019, primarily due to an expected contraction in exports
The research firm had revised its forecast from 5.1 percent to 4.6 percent for 2018 and from 4.5 percent to 4.2 percent for the following year
"The revision to the 2019 figure reflects our concerns about exports and investment growth for next year
"We expect Malaysia’s 2019 external outlook to be negatively affected by the combination of a slowing semiconductors cycle and a likely escalation of the US-China trade dispute amid still-low palm oil prices, which should weigh on the country’s trade balance
"Moreover, investment, particularly foreign investment, is likely to remain subdued due to continued policy uncertainty," said the firm
Elaborating, the firm said Putrajaya appeared to be making contradictory statements on foreign investments. On one hand, the federal government appeared to welcome foreign investment while cancelling several projects involving foreign firms
The firm also noted that there appears to be uncertainty as to the requirements for foreign investors to be eligible to invest in Malaysia
"Prime Minister Dr Mahathir Mohamad has said that foreign investment projects must employ Malaysians and satisfy their financing needs with loans from Malaysian banks
"There have so far been no details with regard to the quota for these two criteria, which nonetheless constitutes restrictions that would discourage foreign investors," said the firm
Malaysia was also vulnerable due to externalities such as the slump in global semiconductor and palm oil demand
On the upside, Fitch Solutions predicted that private consumption was set to increase in 2019, largely fueled by the RM37 billion in tax refunds which the previous administration was accused of withholding."We expect the tax refunds to boost disposable incomes and support private consumption in 2019 despite the government's watering down of fuel subsidies and the BR1M cash handouts meant to help lower-income Malaysians cope with their living costs," said the firm
The tax refund will be funded through special dividends derived from Petronas
Meanwhile, Fitch Solutions remarked that the low inflation rate might even allow Bank Negara to cut interest rates to spur economic growth.  - Mkini

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