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Malaysia Country Risk Report Q2 2016

  • January 2016
  • -
  • Business Monitor International
  • -
  • 39 pages

Core Views

Malaysia's Q315 real GDP grew by 4.7% y-o-y, reflecting theeconomy's slowest growth rate in nine quarters. We maintain ourforecasts for 2015 and 2016 real GDP growth to come in at 4.7%and 4.5% respectively, as we expect both the domestic and externalsectors to face continued headwinds over the coming quarters.Although most of the measures raised in Malaysia proposed 2016budget are largely aimed at tackling short-term problems, the countryhas retained its commitment to fiscal consolidation, informing ourforecast for the deficit in 2016 to come in at 3.1% of GDP.The decision by Bank Negara Malaysia to keep its overnight policyrate steady at 3.25% during its November 5 monetary policy meetingwas in line with our expectations and we forecast interest ratesto remain unchanged through H116. The central bank will seek tosupport growth while providing financial stability as internal andexternal events continue to undermine investor confidence.
Despite a weak technical picture, an undervalued real effectiveexchange rate, modest current account surplus and positive realinterest rates should provide support to the ringgit following its aggressivesell-off of around 20% in 2015. We therefore remain largelyneutral on the MYR against the US dollar with a slightly appreciatorybias over the coming years, and forecast the unit to end 2016 atMYR4.1000/USD.While embattled Malaysian Prime Minister Najib Razak appears tohave continued to consolidate his position following United MalaysNational Organisation's general assembly (8-12 Dec), the aggressiveactions used to secure party discipline suggest that he is notas secure as he appears. State elections in Sarawak also meanthat existing problems could come to the fore once again duringcampaigning, with the opposition Democratic Action Party havingmade steady inroads.

Table Of Contents

Malaysia Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Domestic Headwinds To Continue Undermining Growth8
Malaysia's Q315 real GDP grew by 47% y-o-y, reflecting the economy's slowest growth rate in nine quarters We maintain our forecasts
for 2015 and 2016 real GDP growth to come in at 47% and 45% respectively, as we expect both the domestic and external sectors to
face continued headwinds over the coming quarters
GDP By Expenditure Outlook 10
TABLE: GDP GROWTH FORECASTS 10
TABLE: PRIVATE CONSUMPTION FORECASTS 10
TABLE: GOVERNMENT CONSUMPTION FORECASTS 10
TABLE: FIXED INVESTMENT FORECASTS 10
TABLE: NET EXPORTS FORECASTS 10
Fiscal Policy And Public Debt Outlook 11
Thoughts On The 2016 Budget11
Although most of the measures raised in Malaysia's proposed 2016 budget are largely aimed at tackling short-term problems, the
country has retained its commitment to fiscal consolidation, informing our forecast for the deficit in 2016 to come in at 31% of GDP
Structural Fiscal Position 12
Monetary Policy 12
Rates To Remain On Hold Through H11612
The decision by BNM to keep its overnight policy rate steady at 325% during its November 5 monetary policy meeting was in line with
our expectations and we forecast interest rates to remain unchanged through H116 The central bank will seek to support growth while
providing financial stability as internal and external events continue to undermine investor confidence
TABLE: MAIN EXPENDITURE and REVENUE CATEGORIES 12
Monetary Policy Framework 13
Currency Forecast 14
MYR: Remaining Neutral Despite Ongoing Headwinds14
Despite a weak technical picture, an undervalued real effective exchange rate, modest current account surplus and positive real interest
rates should provide support to the ringgit following its aggressive sell-off of around 20% in 2015 We therefore remain largely neutral on
the MYR against the US dollar, with a slightly appreciatory bias over the coming years, and forecast the unit to end 2016 at MYR41000/
USD
TABLE: BMI CURRENCY FORECAST15
Outlook On External Position 16
TABLE: MAIN IMPORTS and EXPORTS 16
TABLE: MAIN IMPORT and EXPORT PARTNERS 16
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE 16
Chapter 2: 10-Year Forecast 19
The Malaysian Economy To 2025 19
Productivity Gains To Support 40% Real Growth 19
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 45% (65% in nominal US dollar terms) over the next decade
While this is slightly below the 51% (105% 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
TABLE: LONG-TERM MACROECONOMIC FORECASTS19
Chapter 3: Political Outlook 23
SWOT Analysis 23
BMI Political Risk Index 23
Domestic Politics 24
Najib Consolidates Power, But Dissent Persists24
While embattled Malaysian Prime Minister Najib Razak appears to have continued to consolidate his position following UMNO's general
assembly (8-12 Dec), the aggressive actions used to secure party discipline suggest that he is not as secure as he appears State
elections in Sarawak also mean that existing problems could come to the fore once again during campaigning, with the opposition DAP
having made steady inroads
TABLE: POLITICAL OVERVIEW 24
Long-Term Political Outlook 26
Race Relations Still Cloud The Horizon26
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 4: Operational Risk 29
SWOT Analysis 29
Operational Risk Index 29
Operational Risk 30
TABLE: OPERATIONAL RISK 30
TABLE: ASIA - TRADE PROCEDURES AND GOVERNANCE31
TABLE: IMPORT AND EXPORT DOCUMENTS 32
TABLE: TRADE PROCEDURES BREAKDOWN 32
Chapter 5: BMI Global Macro Outlook 35
Global Macro Outlook 35
Unfinished Business In 201635
TABLE: GLOBAL ASSUMPTIONS35
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 36
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 36
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %37
TABLE: MALAYSIA - MACROECONOMIC DATA and FORECASTS39

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