M’sia’s economy to gradually pick up in 2H — Analysts

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A cyclical rebound is long overdue as the Malaysian economy has faced four quarters of economic Slowdown, analysts say. — Reuters photo

A cyclical rebound is long overdue as the Malaysian economy has faced four quarters of economic Slowdown, analysts say. — Reuters photo

KUCHING: Analysts believe that the likelihood of a second half of 2016 (2H16) recovery is extremely probable as gross domestic product (GDP) growth expected to bottom out at four per cent year-on-year (y-o-y) in the second quarter of 2016 (2Q16), bringing 1H16 growth to 4.1 per cent.

In a recent report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) pointed out that a cyclical rebound is long overdue as the Malaysian economy has faced four quarters of economic slowdown.

“Given that severe financial imbalances (that would imply a recession risk) have not surfaced, we rate the likelihoodof a 2H16 recovery as extremely probable.

“However the strength of the recovery would be modest, as the prospects for the Malaysian economy is tied to global growth in GDP and trade, which has been forecasted to be gradual.

“Additionally, we expect that Malaysian GDP growth would be uncertain and relatively more difficult to predict accurately compared to previous quarters,” it commented.

Therefore, the research team have assigned a range to its 2H16 GDP forecast of four to five per cent, which is at the lower end would be equal as the growth rate in the 1H16.

“Despite what is likely to be a pick-up in growth in 2H16, the 2016 average growth rate would be lower than 2015, in large part due to the underperformance in 1H16,” it opined.

Kenanga Research further highlighted, though Malaysia’s economy showed growing signs of resilience – with 3Q16 GDP growth projected to nudge up 4.2 per cent y-o-y on the back of domestic demand – the current assessment for 2H16 growth outlook remains ambiguous.

Meanwhile, it noted that inflation is expected to be muted in 2H16 as GST-related price increases from 2015 have been fully reflected in the consumer price index (CPI). It revised its CPI forecast to 2.3 per cent from 2.6 per cent.

It also expected capital flows to remain volatile in 2H16 as investors look to how events such as Brexit pan out.

“Global risk events may trigger portfolio rebalancing to less risky investments, but a more stable global outlook will increase the attractiveness of the local bond and equity markets,” it said.

As for the performance of the ringgit, the research team said the ringgit is expected to strengthen as crude oil prices stablises but would be impacted by the Fed rate hike before year end.

“In 2H16 we see US dollar to ringgit to range between 3.90 and 4.20 and close the year at about 4.17,” it added.

Beyond 2016, Kenanga Research said the tepid and prolong economic growth trend is expected to bottom out by mid-2016.

“Our preliminary analysis showed a possibility of higher GDP growth in 2017 of 4.9 per cent. But the caveat is that it all depends on how fast the regional economies, mainly its major trading peers, recover from the fast changing global economy.

“External conditions such as continued weak demand from a slowing Chinese economy, slower than expected recovery in developed economies due to adverse events such as Brexit, volatile commodity prices, escalating geopolitical risks are among other factors that could delay the cyclical recovery expected in regional economies,” it added.

It expected Malaysia’s economic growth to range within 4.5 to five per cent in 2017 and slightly higher in the subsequent years barring any unforeseen risk to global growth.

“As the global economy may see some improvement following the outcome of various measures by both advance and developing countries to prop up growth in their respective countries, it is also expected to partly contribute to an incipient recovery in the domestic economy beginning in 2H16 or early 2017.

“These combined factors shaped our long term viewpoint of further improvement in the Malaysian economy going forward,” it added.