KUALA LUMPUR: Moody's has maintained its 4.8 per cent growth outlook for Malaysia for 2015 but lowered its growth outlook to 4.5 per cent from 5 per cent for 2016.
The continued broad weakness of commodities prices is another dampener.
The sharp decline in energy prices is painful for Malaysia (A3 positive), where income from oil and natural gas make up around 30 per cent of government revenues and over 20 per cent of exports.
"Commodity exporters Indonesia and Malaysia are experiencing cooling demand from China, on top of lower costs for these products," said analysts.
In the case of Malaysia, it noted that weakening sentiment is cooling private sector consumption and investment which has compounded the soft external demand conditions.
Asian palm oil companies are facing difficulties reducing their debt burden owing to low vegetable oil prices.
Moody's expects CPO prices to remain under pressure over the next 18 months, with vegetable oil markets oversupplied and demand soft.
Meanwhile it said the impact of ringgit depreciation will be limited for Malaysia as it believes that the direct impact of ringgit depreciation is manageable due to the low proportion of government debt denominated in foreign currency.
"However, we acknowledge that ringgit depreciation is a symptom of declining export revenues, capital outflows and worsening sentiment towards Malaysia."
These, it said, are negatively impacting key credit buffers such as the country's current account surplus, foreign reserve coverage and economic growth trajectory.
Rated corporates will weather a weaker ringgit but weaker oil prices will hurt earnings of commodity producers.
Brent crude and crude palm oil price weakness will continue to weigh on the cash generating ability of Petroliam Nasional Bhd, IOI Corporation Bhd and Sime Darby Bhd.