Malaysia Business Forecast Report Q1 2015

Business Monitor International
October 18, 2014
51 Pages - SKU: BMI5361186
Countries covered: Malaysia

Malaysia Business Forecast Report Q1 2015

Core Views

The Malaysian economy's strong real GDP growth in Q214 is likelyto continue to be supported by strong exports, but we expect consumerspending growth to weaken. In light of strong H114 data, wehave upgraded our full-year forecast from the current level of 4.5%to 5.8%.

The proposed changes to Malaysia's fuel subsidy scheme will placeupside pressures on inflation, posing short-term problems for thegovernment as it seeks to contain the rising cost of living. However,we believe that the proposed changes will have a positive impact onlong-term fiscal discipline by reducing expenditures and increasinggovernment revenue.

In line with our expectations, Bank Negara Malaysia (BNM) held itsOvernight Policy Rate (OPR) at 3.25% during its monetary policymeeting on September 18. We forecast interest rates to remainon hold for the rest of 2014 and through 2015 as BNM focuses onmaintaining growth as exports have slowed and inflation shouldremain manageable.

We continue to forecast the ringgit to appreciate to MYR3.1100/USDby end-2014 and MYR2.9500/USD by end-2015 due to strong GDPgrowth, benign inflation, and a stronger demand for exports.

The debacle over the new Selangor Chief Minister in Malaysia willhave negative effects on the policy making ability of Pakatan Rakyat(PR), which holds the majority in Selangor's State Legislative Assembly,and shows that the coalition lacks unity. Infighting has alsodistracted the government from dealing with more pressing economicissues. We believe that this will lead to a deterioration in the businessenvironment and may deter investors from investing in the state.

Major Forecast Changes

We have upgraded our full-year GDP forecast from the current levelof 4.5% to 5.8% in the light of strong H114 data. While exports arelikely to continue to provide support for growth, we expect consumerspending growth to weaken over the coming quarters.



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