KUALA LUMPUR (Dec 31): Malaysian Rating Corp Bhd (MARC) expects Malaysia to post gross domestic product (GDP) growth of 4.7% in 2015, lower than the government’s growth projection of between 5% and 6% as announced in Budget 2015.
The ratings agency attributed the downward bias in its GDP forecast to dampened domestic demand as it expects slower growth in private consumption and investment, moderating pace of export performance due to uncertainties in major economies and lower-than-expected average oil price.
“Although generally declining oil prices will boost consumer spending (as in the US), in the case of Malaysia, it may only prevent a significant erosion in consumer spending which would have taken place if pump prices were on the uptrend.
“This is because consumers are already overstretched by high household debt and are facing rising costs of living,” said MARC in a note today.
Its forecast is similar to World Bank’s estimation for Malaysia’s GDP next year. On Dec 17, World Bank, which originally had a 4.9% GDP growth projection for Malaysia, revised its forecast to 4.7% as it expects the nation’s economy to grow at a slower pace amid tumbling oil prices.
Meanwhile, MARC said it expects private consumption growth to moderate to 5.5% next year from 6.4% this year.
Although the research agency expects investments to remain resilient next year, it cautioned growth will continue to normalise as the government tightens its belt following a cloudier outlook for the global economy and lower oil revenue.
On inflation, it said the consumer price index (CPI) will continue to rise in 2015, due to the implementation of goods and services tax (GST) and possible further cuts in subsidies. It also forecasts an average inflation rate of 4%-4.5% next year.
It further noted that the increase in CPI due to implementation of GST is likely to be a “transient phenomenon”, and that CPI growth may subside in the following year.
Despite its rising consumer prices forecast, MARC does not expect Bank Negara Malaysia to respond with a hike in the overnight policy rate (OPR), as price increases will not be due to demand-pull inflation.
Hence, the agency expects the OPR to remain stable at 3.25% in 2015.
“Notwithstanding this, two major developments are worth following; (i) the amount of capital outflows which may increase due to the narrowing interest rate gap with the US; and (ii) the pace of real GDP growth which, if it remains resilient despite the headwinds faced by the economy, will risk an interest rate hike in 2015,” it said.