2013-02-21 09:09:22 - New Country Reports market report from Business Monitor International: "Malaysia Business Forecast Report Q2 2013"

Core Views

Malaysia's real GDP growth slowed from an upwardly revised 5.6% year-on-year (y-o-y) in Q212 to 5.2% in Q312, in line with our core view that cooling external demand will continue to weigh on headline growth. We continue to expect real GDP growth to come in at a relatively subdued 4.5% in 2013, compared to consensus of 4.9%.

Despite growing concerns that increased public spending by the government in the lead-up to general elections could fuel inflationary pressures in 2013, we argue that, at least in the near term, leading indicators continue to reflect a stable outlook for consumer prices. A moderation in money supply growth, producer price disinflation and stable commodity prices suggest a stable outlook for consumer prices, at

least in the near term. We expect Bank Negara Malaysia (BNM) to keep its policy rate on hold at 3.00% throughout 2013.


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Malaysia's deteriorating fiscal position is becoming a major risk to the country's long-term economic outlook, and we continue to see evidence that the government is ignoring the problem, at least for now. A mixed election outcome could potentially delay tax reforms to address the country's deteriorating fiscal position. Should this scenario come to pass, we would consider downgrading Malaysia's fiscal outlook over the medium term.

Major Forecast Changes

We have revised down our forecast for headline consumer price inflation and now expect it to average a benign 2.0% in 2013, compared with previous forecast of 2.5%.

Key Risks To Outlook

Malaysia's economic outlook remains vulnerable to external shocks. Weaker-than-expected growth in major economies such as China may have a negative impact on Malaysia's near-term growth prospects. Over the next few years, the success of government initiatives such as the Economic Transformation Programme will be crucial in sustaining the country's growth trajectory.

Partial Table of Contents:

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Political Outlook
An Increasingly Tight Race For The Barisan Nasional
- The ruling Barisan Nasional (BN) coalition is set to face an increasingly close race at the upcoming general election according to latest polls. Although our view remains that the BN will win by a marginal vote, we warn of the increasing risk of a swing vote in favour of the opposition. Our worst-case scenario would include any attempts by the government to rig the vote, which would risk igniting widespread public unrest and present significant uncertainties to the country's long-term political outlook.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Race Relations Still Cloud The Horizon
- Malaysia's ethnic diversity will continue to influence domestic politics, and the rise of a stronger opposition presents myriad possibilities in the political arena over the longer term.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Weak Exports Becoming An Increasing Risk To Growth
- Malaysia's economy grew at a subdued pace of 5.2% y-o-y in Q312, weighed by cooling external demand. We believe that the recent uptick in economic data from China is unlikely to last beyond early 2013 and that we will continue to see a structural slowdown in economic activity. Accordingly, we expect Malaysia's real GDP growth to come in at a relatively subdued 4.5% in 2013, compared to consensus of 4.9%.
TABLE: ECONOMIC ACTIVITY
Monetary Policy
BNM To Favour Neutral Stance
- A moderation in money supply growth, producer price disinflation and stable commodity prices suggest a stable outlook for consumer prices, at least in the near term. We expect Bank Negara Malaysia (BNM) to keep its policy rate on hold at 3.00% throughout 2013.
TABLE: MONETARY POLICY
Balance Of Payments
Volatile Capital Flows A Major Risk To The Economy
- The macroeconomic fundamentals supporting Malaysia's track record of running persistent current account surpluses over the years (averaging 12.6% of GDP through 1998-2012) remain largely intact. Despite recent efforts by the government to rebalance the economy towards domestic demand amid concerns that global economic growth may remain subdued for an extended period of time, we continue to see the country running current account surpluses averaging 5.8% of GDP over the next five years (2013-2017). This is closely in line with our view that the Malaysian ringgit will continue to appreciate over the medium term.
TABLE: CURRENT ACCOUNT
Fiscal Policy
Mixed Election Outcome A Risk To Fiscal Outlook
- Uncertainties over the outcome of the upcoming general elections have presented significant downside risks to our already downbeat fiscal outlook for Malaysia. A mixed election outcome could potentially delay tax reforms to address the country's deteriorating fiscal position. Should this scenario come to pass, we would consider downgrading Malaysia's fiscal outlook over the medium term. 19
TABLE: FISCAL POLICY
Chapter 3: 10-Year Forecast
The Malaysian Economy To 2022
Investment-Driven Growth In The 2010s
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