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Malaysia Country Risk Report Q4 2018

Malaysia Country Risk Report Q4 2018

In light of the likely boost to consumption from the abolition of GST, we have revised our 2018 real GDP growth forecast for Malaysia to 5.8% (from 5.5% previ-ously), despite the moderation in Q118 growth to 5.4% y-o-y from Q417's 5.9% y-o-y. Our forecast continues to put us above Bloomberg's consensus forecast of 5.4%.

We are revising our 2018 fiscal deficit forecast for Malaysia to 4.0% of GDP, from 2.8% previously. We have also adjusted our average deficit forecast for the next decade, from 2.8% to 3.1%. This reflects the negative impact to government revenues from the decision to stop collecting GST from June 1.

We are revising our forecast for inflation to average 2.6% (from 3.2%, previously), in 2018 following the ease in overall price levels in Q118. Additionally, we now expect the central bank to hold its benchmark policy rates at 3.25% (from a hike to 3.50%, previously) through 2018 as political uncertainty following the shock opposition victory will likely weigh on growth.0
We are revising our 2018 average forecast for the Malaysia ringgit to MYR4.00/USD from MYR3.80/USD, previously, to reflect the elevated risk premiums in the country. We are also negative on the MYR over the long term, forecasting a 2019 average of MYR4.20/USD (from MYR3.70/USD, previously), informed by Malaysia's vulnerability to outflows and its worsening fiscal outlook.

We are maintaining our Short-Term Political Risk score for Malaysia at 72.5 (out of 100), believing that the political situation remains challenging due to the ongoing overhaul of government institutions, royal disdain for Prime Minister Mahathir, and distrust between supporters of Anwar and Mahathir.

Major Forecast Changes

We have revised the following:


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic - SWOT Analysis
Political - SWOT Analysis
Economic Outlook
Economic Growth Outlook
Revising Up Malaysia's 2018 Growth Forecasts To Reflect Populist Turn
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: MAIN IMPORTS & EXPORTS
TABLE: MAIN IMPORT & EXPORT PARTNERS
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
Malaysia's Rates To Remain Unchanged Over H218
TABLE: POSSIBLE LOSS OF GST REVENUE NEGATIVE FOR FISCAL OUTLOOK
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Loss Of GST Revenues To Widen Malaysia's Fiscal Deficit
ContentsStructural Fiscal Position
TABLE: MAIN EXPENDITURE & REVENUE CATEGORIES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
Malaysian Ringgit: Downward Revision As Uncertainty Rises
TABLE: CURRENCY FORECAST
10-Year Forecast
The Malaysian Economy To 2027
Malaysia's Long-Term Real GDP Growth To Slow To 4.3%
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Malaysia's Pakatan Harapan To Face Triple Threat
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Malaysian Electoral Politics To Remain Uncertain
Global Macro Outlook
Pressure On EM Grows, As Do Divergences
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: MALAYSIA – MACROECONOMIC DATA & FORECASTS

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