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Malaysia Business Forecast Report Q1 2015

  • October 2014
  • -
  • Business Monitor International
  • -
  • 51 pages

Core Views
T he Malaysian economy's strong real GDP growth in Q214 is likely to continue to be supported by strong exports, but we expect consumer spending growth to weaken. In light of strong H114 data, we have upgraded our full-year forecast from the current level of 4.5% to 5.8%. T he proposed changes to Malaysia's fuel subsidy scheme will place
upside pressures on inflation, posing short-term problems for the government as it seeks to contain the rising cost of living. However, we believe that the proposed changes will have a positive impact on long-term fiscal discipline by reducing expenditures and increasing government revenue.

I n line with our expectations, Bank Negara Malaysia (BNM) held its Overnight Policy Rate (OPR) at 3.25% during its monetary policy meeting on September 18. We forecast interest rates to remain on hold for the rest of 2014 and through 2015 as BNM focuses on maintaining growth as exports have slowed and inflation should remain manageable.
We continue to forecast the ringgit to appreciate to MYR3.1100/USD by end-2014 and MYR2.9500/USD by end-2015 due to strong GDP growth, benign inflation, and a stronger demand for exports. The debacle over the new Selangor Chief Minister in Malaysia will have negative effects on the policy making ability of Pakatan Rakyat (PR), which holds the majority in Selangor's State Legislative Assembly, and shows that the coalition lacks unity. Infighting has also distracted the government from dealing with more pressing economic issues. We believe that this will lead to a deterioration in the business environment and may deter investors from investing in the state.

Major Forecast Changes
We have upgraded our full-year GDP forecast from the current level of 4.5% to 5.8% in the light of strong H114 data. While exports are likely to continue to provide support for growth, we expect consumer spending growth to weaken over the coming quarters.

Table Of Contents

Malaysia Business Forecast Report Q1 2015
Executive Summary 5
Core Views..5
Major Forecast Changes.5
Key Risks To Outlook..5
Chapter 1: Political Outlook 7
SWOT Analysis. 7
BMI Political Risk Index.. 7
Domestic Politics .. 8
Politicking At Expense Of Economy..8
The debacle over the new Selangor Chief Minister in Malaysia will have negative effects on the policy making ability of Pakatan Rakyat
(PR), which holds the majority in Selangor's State Legislative Assembly, and shows that the coalition lacks unity. Infighting has also
distracted the government from dealing with more pressing economic issues. We believe that this will lead to a deterioration in the
business environment and may deter investors from investing in the state.
Table : Political Over view 8
Long-Term Political Outlook. 10
Race Relations Still Cloud The Horizon.10
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. 13
SWOT Analysis.. 13
BMI Economic Risk Index 13
Economic Activity 14
Growth Continues To Be Export-Driven.14
The Malaysian economy's strong real GDP growth in Q214 is likely to continue to be supported by strong exports, but we expect
consumer spending growth to weaken. In light of strong H114 data, we have upgraded our full-year forecast from the current level of
4.5% to 5.8%.
TABLE: Economic Activity14
Revamped Fuel Subsidy Good For Government Coffers.15
The proposed changes to Malaysia's fuel subsidy scheme will place upside pressures on inflation, posing short-term problems for the
government as it seeks to contain the rising cost of living. However, we believe that the proposed changes will have a positive impact on
long-term fiscal discipline by reducing expenditures and increasing government revenue.
TABLE: Fiscal Policy.15
BNM Holds Rates For Now.16
In line with our expectations, Bank Negara Malaysia (BNM) held its Overnight Policy Rate (OPR) at 3.25% during its monetary policy
meeting on September 18. We forecast interest rates to remain on hold for the rest of 2014 and through 2015 as BNM focuses on
maintaining growth as exports have slowed and inflation should remain manageable.
TABLE: Monetary Policy..17
Exchange Rate Policy 18
MYR: The Bull Market Charges On18
We continue to forecast the ringgit to appreciate to MYR3.1100/USD by end-2014 and MYR2.9500/USD by end-2015 due to strong
GDP growth, benign inflation, and a stronger demand for exports.
TABLE: BMI CURENCY FORECAST.18
TABLE: Current Account.19
Chapter 3: 10-Year Forecast. 21
The Malaysian Economy to 2023 21
Productivity Gains To Support 4.0% Real Growth21
Owing to strong demographic trends, a continually improving business environment, and further ASEAN economic integration, we see
Malaysian real GDP seeing a compound annual average growth rate of 4.0% (8.3% in nominal US dollar terms) over the next decade.
While this is slightly below the 4.3% (10.5% in nominal US dollar terms) rate seen over the past decade, this largely reflects lower
growth in the working age population, while labour productivity growth is set to rise. The lofty level of household debt, and uncertainty
regarding the fiscal trajectory are risks, but are not likely to derail the economy's strong prospects.
TABLE: Long-Term Macroeconomic Forecasts21
Chapter 4: Operational Risk 25
SWOT Analysis.. 25
Operational Risk Index. 25
Operational Risk 26
TABLE: Operational Risk..26
Transport Network 27
Table : Asia Transp ort Netw ork Ris ks..28
Economic Openness.. 32
TABLE: Asia - Economic Openness Risk..33
TABLE: Top 5 Products Imported (USDmn), 2007-2013.34
TABLE: Top 5 Trade Partners Product Exports (USDmn), 2007-2013.. 35
Chapter 5: Key Sectors.. 37
Oil and Gas 37
TABLE: Headline Forecasts..37
TABLE: Oil Production38
TABLE: Gas Production.39
TABLE: Gas Production.39
Infrastructure.. 41
TABLE: Construction And Infrastructure Industry Data42
TABLE: Construction And Infrastructure Industry Data43
Other Key Sectors 47
Table: Pharma Sector Key Indicators.47
Table: Food and Drink Sector Key Indicators47
Table: Autos Sector Key Indicators.47
Table: Defence and Security Sector Key Indicators.48
Table: Telecoms Sector Key Indicators48
Table: Freight Key Indicators..48
Chapter 6: BMI Global Assumptions.. 49
Global Outlook 49
Big Emerging Market Revisions.49
Table: Global Assumptions.49
Table : Devel oped States , Real GDP Growt H, %..50
Table : BMI VERSUS BLOO MBERG CONSENSUS REAL GDP GROWTH FORECASTS, %.. 50
Table : Emerging Mar kets , Real GDP Growth , %.51

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