KUALA LUMPUR: Standard & Poor’s has described Malaysia’s growth story as broadly unchanged, driven by steady consumption activities with some support from investments.
Despite a few years of high household debt levels, domestic consumption continues to hold.
“For Malaysia, like elsewhere in the region, net exports have not been a big contributor to growth,” said its Asia-Pacific economist Vincent Conti in a webcast on Asia Pacific credit conditions.
Consumption activities also propelled growth in China and, according to S&P’s, the gross domestic product (GDP) growth in the region remained steady, largely driven by private consumption.
External demand was strong in Malaysia as well as in Taiwan, Thailand and Singapore.
Export growth increased in July after easing in the previous few months with rising global demand, particularly for electronics.
Shipments from Malaysia rose significantly due to a spurt in demand from the European Union, China and Singapore for its machinery, transport equipment and mineral fuels.
“The industrial output growth has also held up well,” it said.
Malaysia’s output growth stayed elevated boosted by manufacturing, offsetting sluggish mining output.
On the foreign exchange front, S&P’s said Asia Pacific currencies continued to gain against the dollar amid tensions on the Korean peninsula.
The Australian dollar leads the pack and the peso is the outlier, it noted.
On the outlook for the interest rate for Malaysia, Conti expects Bank Negara Malaysia to hike the Overnight Policy Rate next year.
“It is based on a basically broad trend we see in southeast Asia based on their profiles,”he said.
Conti explained that there has been a slow trend-up in line with the Fed and this was because economies in the region enjoy a decent growth and have no need to hike or cut their rates.
Investors were wary about whether the US Federal Reserve Fund will raise rates this year.
Paul Gruenwald, who is the chief economist of Asia-Pacific, when asked about the risks to the region, and the potential turbulence of the Fed’s Quantitative Easting (QE) exit, said:
“No one is sticking out (in terms) of current account imbalances. They are not as affected as other emerging markets.”
S&P’s expect the Fed to have two rate hikes this year.
Gruenwald described the growth forecasts of the Asia-Pacific as better than the other regions and pointed to Japan, China and Australia as looking better with their strong numbers.
On macro risks, he said the earlier US-China trade disturbance/trade war has diminished significantly.
“There will be tensions relating to North Korea.
“We continue to worry about the macro credit trajectory of Chinese economy but it will be a medium-term risk as China is self-financing and relies solely on domestic savings to finance its investments. Also the strong hand of state in allocating resources provides some space to deal with their credit issue.”