The research arm of RHB Banking Group, Malaysia's fourth largest fully integrated financial services group, predicts Malaysia's real gross domestic product (GDP) at five percent this year and in 2019 on account of weakening external demand for Malaysian commodities.
RHB Research said the estimated GDP growth rates for 2018 and 2019 are both far lower than the 5.9 percent GDP growth achieved in 2017. In a note to investors, RHB Research said the continuing slowdown in Malaysia's economy will also put a brake on Malaysian demand for exports.
It said growth prospects among emerging market and developing economies are becoming more uneven. This slowdown is being driven by rising oil prices; higher interest rates in the United States; escalating trade tensions and market pressures on the currencies of some countries with weaker fundamentals.
The GDP growth estimate for 2018 from RHB Research mirrors that of the Bank Negara Malaysia (BNM), Malaysia's central bank. In July, BNM lowered Malaysia's GDP growth estimates for 2018 to five percent from its previous projection of 5.5 percent to six percent.
The lower estimate was brought on by fears of prolonged disruptions in oil and gas production and low production in agriculture, according to central bank Governor Datuk Nor Shamsiah Mohd Yunus. Malaysia's economy grew 4.5 percent in the second quarter compared to government estimates of around 4.9 percent.
It is against the backdrop of a weaker growth outlook and escalating US-China trade tensions that RHB Research projects Malaysia's real exports to decelerate to 3.5 percent for 2019 from four percent estimated for this year. On the other hand, import growth is expected to improve to 3.5 percent from 3.1 per over the same period.
RHB Research expects Malaysia's current account position to rebound and register a larger surplus of $10.1 billion or 2.9 percent of GDP for 2019. The boost will be due to the cancellation or deferment of massive Chinese-sponsored infrastructure projects by Prime Minister Mahathir Mohamad. The government decision will remove the need to import very expensive machinery and materials for construction work. Before Mahathir's action, RHB Research estimated a current account surplus of $9.5 billion or 2.7 percent of GDP in 2018.
RHB Research expects the already sagging Malaysia ringgit to remain weak in October before settling at RM4.10 against the U.S. dollar by the end of 2018. The ringgit again fell, this time by 0.9 percent against the dollar to a nine-month low of RM4.1465 in the first week of September. This new low added to the 1.1 percent depreciation in August.
Headline inflation is projected to increase to two percent in 2019, from an estimate of 1.2 percent of 2018. RHB Research said this will be due to prices readjusting after the replacement of Goods and Services Tax with the Sales and Services Tax. It will also be due to the low base-effect following a three-month tax holiday that will lower inflation in 2018.
