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Despite heightened levels of global
uncertainties, economic growth in Malaysia will remain resilient given the
ample room for policy flexibility – fiscal and monetary-wise.
- The transmission of the impact of a global economic
slowdown on the Malaysian economy can be categorised into two major channels –
a demand drop-off and/or the financial effect.
- We have witnessed the impact as both IPI and trade figures
have been volatile in recent months. The ringgit has depreciated significantly,
while financial markets are experiencing high levels of volatility.
- While exogenous shocks remain as the biggest threat to the
Malaysian economy, any severe short-falls will be cushioned by the
implementation of fiscal stimulus. This could be announced through more direct
routes such as the proposed continuation of the BR1M handouts as well as other
social benefits.
- In this regard, cash handouts and other direct social
benefits are preferable given the higher multiplier effects that can be achieved
in a short span of time.
- A greater propensity among the medium- to low-income
groups to consume also ensures that most of the cash will be reintroduced
immediately into the economy.
- As a result of the recent GDP rebasing exercise done by
the Statistics Department, additional fiscal space has been created as rising
nominal GDP figures has resulted in lower levels of debt to GDP ratios.
- As such, an addition of about RM20bil in debt is now
available to the government, ensuring that a substantial amount of fiscal stimulus
could still be introduced in order to absorb potential external demand shocks
without exceeding the 55% debt to GDP level.
- Similarly, interest rates in Malaysia continue to have a
large influence on the economy, as the OPR remains far from the zero bound
level.
- Nevertheless, at the current level of 3%, the OPR
continues to be at an accommodative level towards promoting growth, while ensuring
adequate levels of price stability. As such, in the current environment we do
not expect to see any rate cut in the quarters ahead.
- However, in the event of severe financial market
disruptions, there is ample room for BNM to introduce rate cuts, given a cushioning total of 130bps of positive real interest
rates still available.
- In this regard, while we have trimmed our 5% GDP growth
figure to around 4.5%, the amount of policy space available coupled with the
continued expansion in domestic demand ensures that a strong economic growth in
Malaysia remains to be on the cards.
- In terms of the currency, the ringgit will likely
depreciate against the US dollar this year, ranging between RM3.15 and RM3.20 in
the near term before ending the year at around RM 3.15/US dollar, depending on
the global economic developments.
- Compared to ASEAN peers, however, we expect to see much stable
cross rates to follow through on the back Malaysia’s better growth prospects in
times of uncertainties as well as higher real interest rates differentials.
Source: AmeSecurities
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