Wellian Wiranto
KUCHING: OCBC Bank (Malaysia) Bhd (OCBC) is revising its Gross Domestic Product (GDP) for Malaysia this year from 5.1 per cent year-on-year to 4.8 per cent to reflect the effects of fiscal consolidation efforts as well as cutbacks in business investment activities, including those within the oil & gas sector.
The group in a statement yesterday said in the near term, lingering uncertainties about oil prices and the impact on Malaysia’s growth may continue to weigh on sentiment.
However, the adoption of a more realistic budget outlook should offer some help eventually, highlighted economist Wellian Wiranto.
“For Malaysia, the rapid drop in global oil prices has brought on some challenging moments, unfortunately. To be sure, the challenges posed by low oil prices to Malaysia do not come through the trade channel.
“Indeed, the country’s oil trade balance is actually pretty much close to zero if we consider not just crude oil but also refined petroleum products.
“This is another way of saying that, whatever amount Malaysia receives by exporting crude oil, it spends nearly the same sum importing refined oil products, whose prices should adjust downward too even if not by a one-to-one ratio.”
The primary channel for the transmission of concerns is really on the fiscal front, Wellian said, even though Prime Minister Datuk Seri Najib Tun Razak has succeeded in reducing the government’s fiscal dependence since he took power in 2009, oil-related revenue still makes up a chunky portion of 30 per cent of total revenue in 2014.
“Hence, with every drop in oil price, the market casts a concerned eye on Malaysia’s fiscal health, especially as its price assumption of US$100 to US$105 per barrel looks more and more untenable by the day.
“Most recently, the Prime Minister has revised the assumption to a more grounded US$55 per barrel.
“As a result, the budget deficit is seen to be at 3.2 per cent compared to the three per cent previously expected. While that is not ideal, it is nonetheless markedly better to acknowledge the new reality of low oil price than not.”
From a global perspective, the US economy will continue its growing trend and remain a dependable growth engine for the global economy.
The US economy has been rather resilient, with encouraging signs of growth in the labour market. Compared to the peak at 10 per cent, the unemployment rate went down to 5.6 per cent in December 2014.
“Importantly, it helped to wind down the Quantitative Easing programme at a gradual pace and signalled to market that with the return of sustained growth, US interest rates would normalise soon.”
In contrast to the robust growth in the US economy,Wellian observed that the eurozone is experiencing a fitful recovery process, with even Germany having shown signs of recent slippage.
“Importantly, unemployment remains a nagging issue across the eurozone – it climbed to a high of 12 per cent,” he went on.
“To tackle this, the European Central Bank unveiled an investment plan over the next three years to boost jobs and growth.
“Meanwhile, ECB began buying asset-backed securities in November last year to step up the pressure and broaden even more channels by altering accordingly the size, pace and composition of its purchases.
This goes to suggest that sovereign QE could be on the 2015 card, even as soon as this week. Overall, growth is expected to be positive in Eurozone.”
Here in Asia, the two giants of Japan and China are going through some interesting times as well as Japan looks to be on the mend while China is showing a rebalancing theme.
“In the case of Japan, Prime Minister Shinzo Abe just won the snap election last month. The voting assured that Abe will have another four years to complete his efforts in the “Three Arrows” initiative to revive the Japanese economy.
“Meanwhile, President Xi Jinping of China continues in his endeavours to advance a number of important reforms and put China’s economic growth on a more sustainable and equitable path. What both leaders manage to achieve this year will have long-term implications for the region.”