KUCHING: Analysts hold mixed views on Bank Negara Malaysia’s (BNM) predictions in its 2014 Report with some expecting a more modest growth for domestic demand while others believe demand will stay resilient in 2015.
To note, BNM released its annual 2014 report on Wednesday and one of its highlights include a sustained growth of six per cent for domestic demand, anchored by the private sector expenditure.
AllianceDBS Research Sdn Bhd (AllianceDBS Research) saidwhile BNM’s projections are realistic, there are some degrees of downside risks to its growth projections.
“Much of the growth performance would be dependent on the pace in which the various macro headwinds settle,” it said.
“Given the bearish consumer sentiments since the third quarter of 2014 (3Q14), we expect some moderation in private consumption growth in the coming quarters in light of the higher living costs after the goods and services tax (GST) implementation.”
Nevertheless, AllianceDBS Research pointed out that while it is somewhat bearish on the private consumption growth, in light of weakening consumer confidence since 3Q, the slowdown in consumer spending is likely to be mitigated by the rise in disposable income following lower pump prices and the potential electricity tariffs reduction in months to come.
Meanwhile, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) in a separate report, believed the much lower imports as a result of the greater easing in domestic demand would relieve the pressure on net exports.
However, Maybank Investment Bank Bhd’s research arm (Maybank IB Research) said domestic demand is more likely to ease, on the back of a more subdued public consumption.
It said, “We expect domestic demand to ease by more to 4.7 per cent, mainly reflecting the contraction in public consumption (4.3 per cent decline versus the official forecast of 2.3 per cent) as we factor in the impact of the decline in Government’s operating expenditure following the revised Budget 2015.
“Furthermore, our average crude oil price assumption of US$50 to US$55 per bbl versus the official US$55 per bbl implies downside risk to the oil-related revenues that may necessitate additional adjustment in operating expenditure.”
Aside from that, Maybank IB Research highlighted growth trends in other aggregate demand components are in line with the official forecasts, notwithstanding the differences in ‘growth magnitudes’.
It also believed that trade and current account surpluses would likely shrink.
“In view of the above-mentioned export and import growth conditions causing the net external demand to shrink, we are looking at trade surplus and current account surplus to narrow to RM75.8 billion and RM40 billion (a 3.5 per cent increase of GDP).
“Despite the lower crude oil price assumption, given our view of significant weakness in ringgit this year versus last year and stable crude palm oil (CPO) prices, we are not as bearish as the Government on export growth relative to import growth, hence the smaller narrowing of the trade and current account surpluses,” it explained.
On the other hand, AllianceDBS Research said, “In our opinion, the risk of a trade deficit has substantially diminished.
“The depreciation of the ringgit of late could potentially boost the country’s exports competitiveness. However, we maintain a cautious outlook on the expansion of manufactured goods exports in the near term.
“This is in light of the weak manufacturing data in Malaysia’s key export destinations such as China (12 per cent of total exports in 2014) and Singapore (14 per cent of total exports in 2014) – which have registered contractionary manufacturing Purchasing Manager Index (PMI) readings in recent months.”
On BNM’s expectation of a two to three per cent inflation rate for 2015, AllianceDBS Research said, it retained its inflation rate at 3.5 per cent but it believed the inflation rate in the coming months would remain mixed, given the various push and pull factors on price pressures in the near term.
“We believe that the pump prices would be more volatile in the near future, following the managed float automatic pricing mechanism on the retail sale of fuel.
“The price volatility would exert upward price pressures on transportrelated goods, which make up a substantial share of 14.9 per cent of the basket of goods in the Consumer Price Index (CPI).
“Secondly, we believe that cost-push inflation following the GST implement could potentially push inflation rate above its long-run average of around 2.2 per cent,” it opined.
Similarly, Maybank IB Research projected a higher inflation rate at three to four per cent. It explained, “We acknowledge the impact of lower crude oil price on domestic inflation principally via the drop in fuel prices.
“However, we see GST to be inflationary by virtue of it being a broad-based tax resulting in more goods and services being charged as compared with the outgoing Sales Tax and Services Tax.
“While the government have decided to keep the administered and subsidised prices like that of electricity tariffs and LPG (cooking gas) stable, there are still prospects of hikes in others like public transport fares (buses, taxis) and toll rates.”