KUALA LUMPUR: Malaysia’s economic direction is clearer now despite the temporary “chaos” during the transition period that has worsened investors’ confidence, analysts said.
Some also expect the ringgit to edge higher against the US dollar in the coming months, with Singapore-based OCBC Bank projecting it to trade just above 4.1600 by the year-end.
Malaysia saw a change in government following Barisan Nasional’s loss in the general election in May last year.
MIDF Research said the country was bracing for a better growth this year than the 4.7 per cent posted in 2018.
“As Malaysia currently focuses on free market, quality investment and high productivity, it will have significant impacts on economic growth.
“Despite the temporary chaos during the transition period which deteriorated investors’ confidence, economic direction is clearer now,” the firm said in its latest third quarter market strategy report.
MIDF Research expects Malaysia’s economy to expand 4.9 per cent this year. This would be driven by steady domestic demand amid lower key interest rate effects, low inflationary pressure, stable job market and positive progression in construction sector.
The firm noted that the resumption of infrastructure projects such as East Coast Rail Link would restore investors’ confidence and trust in the Malaysian market, translating into investment flows.
Nevertheless, it said the country’s economic growth this year would be influenced by various internal and external factors such as global slowdown, global financial instability, threat of protectionism, commodity prices volatility and labor market condition.
The gross domestic product (GDP) growth of 4.5 per cent year-on-year (yoy) in the first quarter had exceeded market expectation of a 4.3 per cent expansion, it added.
Meanwhile, OCBC expects the ringgit to edge higher against the dollar in the coming months along with the rest of other Asian currencies before lingering around 4.1641 level by the year-end.
The bank also said that it did not see excessive depreciation pressures on the local unit that were out of line from its Asian peers.
On the outlook for the Asian economy, OCBC economist Terence Wu said the macro outlook continued to look uninspiring as the US-China trade tensions remain a potential flashpoint and may impinge on the macroeconomic readings further.
“The hope is for recovering China to act as an anchor of stability, and for growth to pick up sufficient momentum to filter down towards the rest of Asian economies.
“This scenario, however, is predicated on the trade tensions blowing over,” he said in a statement.
Asian central banks, noted Wu, were now more open towards rate cuts to support the growth impetus.
Apart from the macro considerations, Asian central banks may also be encouraged by the shift inposturing by the US Federal Reserves and other major central banks.
Nevertheless, OCBC expects the easing bias to be carefully calibrated, so as to avoid undue concerns over the macro picture and prompt risks of capital outflows.
Given the spectre of a trade war and soft economic outlook, there may be few positives for Asian currencies as a whole, it added.