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:
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