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Malaysia Country Risk Reports Q2 2015

Malaysia Country Risk Reports Q2 2015

Core Views

We estimate Malaysia's real GDP growth came in at 5.8% in 2014 as weaker export demand weighs on H214 growth. We also maintain our below-consensus growth forecast for 2015 at 4.2%, noting that government measures will dampen private consumption growth while persistent weakness in Malaysia's main trading partners will result in weaker export demand.

Malaysia's 2015 budget signals the government's continued determination to narrow the fiscal deficit. We expect the implementation of GST to have a significant impact on improving government tax revenues, and forecast the fiscal deficit to come in at 2.9% of GDP in 2015 and narrow to 1.4% in 2017.

In line with our expectations, Bank Negara Malaysia (BNM) held its Overnight Policy Rate (OPR) at 3.25% during its monetary policy meeting on November 7. We forecast interest rates to remain on hold through 2015 as BNM focuses on supporting growth amid an environment of slowing export growth and moderate inflation.

Deepening discord over the role of Islam in public life are symptoms of the growing differences within both the opposition and ruling coalitions and will result in increased political instability in Malaysia. This could have a detrimental effect on investor confidence and will become an increasingly divisive issue as the 2018 elections approach.

Major Forecast Changes

We have upgraded our inflation forecasts for 2015 to 3.1% from 2.8% (2015 average) and to 3.0% from 2.4% (end of 2015) to reflect the impact of the 6.0% goods and services tax that will be imposed in April 2015.

We have downgraded our Malaysian ringgit end-year forecast for 2015 and 2016 to MYR3.33/USD and MYR3.58/USD from MYR2.95/USD and MYR2.90/USD respectively to reflect the increasingly bearish technical picture and the risks posed by lower oil prices. Over the long term, sound fundamentals will cap currency weakness.

We have also upgraded our current account forecast for 2015 and 2016 to a surplus of 4.7% and 4.8% of GDP respectively, from 2.1% and 1.9%.


Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Religious Discord Suggests Potential Political Instability
Deepening discord over the role of Islam in public life is a symptom of the growing differences within both the opposition and ruling
coalitions, and will result in increased political instability in Malaysia. This could have a detrimental effect on investor confidence and will
become an increasingly divisive issue as the 2018 elections approach.
Table: POLITICAL OVERVIEW
Long-Term Political Outlook
Race Relations Still Cloud The Horizon
Malaysia's ethnic diversity will continue to influence domestic politics, and the rise of a stronger opposition presents myriad possibilities
in the political arena over the longer term.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Economy Faces Headwinds In 2015
We estimate Malaysia's real GDP growth came in at 5.8% in 2014, as weaker export demand weighed on H214 growth. We also
maintain our below-consensus growth forecast for 2015 at 4.2%, noting that government measures will dampen private consumption
growth while persistent weakness in Malaysia's main trading partners will result in weaker export demand.
table: Economic Activity
Fiscal Policy
2015 Budget: Continued Steps In The Right Direction
Malaysia's 2015 budget signals the government's continued determination to narrow the fiscal deficit. We expect the implementation
of GST to have a significant impact on improving government tax revenues and forecast the fiscal deficit to come in at 2.9% of GDP in
2015 and narrow to 1.4% in 2017.
table: Fiscal Policy
Monetary Policy
Rates To Remain On Hold
In line with our expectations, Bank Negara Malaysia (BNM) held its Overnight Policy Rate (OPR) at 3.25% during its monetary policy
meeting on November 7 2014. We forecast interest rates to remain on hold through 2015 as BNM focuses on supporting growth amid
an environment of slowing export growth and moderate inflation.
table: Monetary Policy
Currency Forecast
MYR: Shifting To Neutral As Headwinds Mount
We have downgraded our Malaysian ringgit end-year forecast for 2015 and 2016 to MYR3.33/USD and MYR3.58/USD from MYR2.95/
USD and MYR2.90/USD respectively to reflect the increasingly bearish technical picture and the risks posed by lower oil prices.
table: BMI CURRENCY FORECAST
table: Curent Acount
Chapter 3: 10-Year Forecast
The Malaysian Economy To 2024
Productivity Gains To Support 4.0% Real Growth
Owing to strong demographic trends, a continually improving business environment, and further ASEAN economic integration, we
believe Malaysian real GDP will see a compound annual average growth rate of 4.0% (8.3% in nominal US dollar terms) over the next
decade.
table: Long-Term Macroeconomic Forecasts
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
table: Operational Risk
Availability Of Labour
Table: Asia – Availability Of Labour
table: Top 10 Source Countries For Migrant Workers
Crime Risk
table: Crime Statistics
table: Asia – Crime Risk
Chapter 5: Key Sectors
Autos
table: Autos Total Market – Historical Data And Forecasts
table: Comparison Of Gren Car Incentives
Food & Drink
table: Food Consumption Indicators – Historical Data & Forecasts
table: Hot Drink Value/Volume Sales, Production & Trade – Historical Data & Forecasts)
table: Mass Grocery Retail Sales By Format – Historical Data & Forecasts
Other Key Sectors
table: Oil and Gas Sector Key Indicators
Table: Pharma Sector Key Indicators
Table: Infrastructure Sector Key Indicators
Table: Defence and Security Sector Key Indicators
table: Telecoms Sector Key Indicators
table: Freight Key Indicators
Chapter 6: BMI Global Assumptions
Global Outlook
New Era For Oil
Table: Global Asumptions
Table: Developed States, Real GDP GrowtH, %
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
Table: Emerging Markets, Real GDP Growth, %

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