KUALA LUMPUR: Malaysia’s economic growth could accelerate after 2020 if commodity prices were to pick up on the back of a recovery in global economic performance.
Moody’s Analytics chief Asia-Pacific economist Steven G. Cochrane said Malaysia’s economic growth would likely slow down in the next two years as a weak global economic outlook could weigh on commodity prices.
“Malaysia, as an open economy, is susceptible to global trends. Every region in the world could see slower growth in 2019 and 2020,” he said during Moody’s Analytics Economic and Credit Risk Forum, recently.
Cochrane projected that Malaysia’s real gross domestic product (GDP) growth may slow down from 5.9 per cent in 2017 to 4.8 per cent in 2018, 4.4 per cent in 2019 and 3.6 per cent in 2020.
“The lower commodity prices, due to slower global economic growth, will hurt emerging markets and Malaysia.
“We don’t see any acceleration in commodity prices until the global economy picks up,” he added.
Crude palm oil (CPO) prices have seen significant weakness since the start of this year, with CPO futures prices hovering near RM2,000 per tonne, due to high stock level and weak demand.
He said the US fiscal stimulus, which has been supporting the US economy, is expected to come to an end in 2020, and this may slow down US’ economic growth, which would weigh on the global economy and the commodity market.
“If we can get to 2020, without a recession in the US and Europe, then there could be a rebound in global growth in 2021 and 2022,” he said.
Cochrane said the US-China trade war could also impact on global trade and the economy, and in the worst case scenario, it could disrupt supply chains and lead to a recession in the US and hurt other economies.
“A lot depend on US President Donald Trump and President Xi Jin Ping’s meeting at the G20 Leaders’ Summit in Buenos Aires at the end of this month.
“All eyes will look for signals coming from Trump and Xi if there could be some settlement on the trade war and if the Trump administration were to allow tariffs to rise to the scheduled 25 per cent by next year,” he said.
If tariffs were to rise and expand to include all trade between China and the US, he said, it would add friction to the Malaysian and global economy.
As for Malaysia, he said, the risks are clearly on the downside, as they are for much of the rest of the region as the expectation of a weaker global economy has dampened oil prices, as well as export orders.
“As a net oil exporter, falling oil prices means the dollar volume of exports will be reduced.
“The price for crude oil has fallen because global demand has slowed and production out of the US shale producing areas has accelerated quickly over the past year.
“The fact that US production has risen so quickly means that the Organisation of the Petroleum Exporting Countries (Opec) has less ability to control prices,” he said.
Cochrane said the sanctions on Iran oil have no significant impact on oil prices, as there are a number of exemptions in place.
He said that the price of oil, based on West Texas Intermediate, is projected to be at the US$69.1 per barrel level this year, and move to US$67.2 per barrel in 2019 and US$63.5 per barrel in 2020.
Cochrane emphasised that Malaysia’s effort to improve transparency and the peaceful transition of power to the new government this year were positive in terms of investor confidence, and in the longer term, good debt management will support economic growth as there would be less budget for debt servicing.
“As the government tightens fiscal policy to improve debt management amid slower export growth, Malaysia's economic growth is expected to slow during the next two years,” he said.