- Growth is supported by continued domestic expansion. Malaysian economy is likely to grow by 4.6% in 2016, compared to our growth projection of 4.9% in 2015. Full-year growth is supported by continued domestic expansion and inflows through trades. Domestic demand will remain the driver of growth in 2016, supported by the private sector spending. Malaysian economy stays on a steady growth trajectory as GDP had advanced by 4.7% in 3Q15. Both public and private investments gathered traction in 3Q15. Growth in 3Q15 was also supported by healthy net trades, but partly offset by slower growth in final consumption expenditure by both the private and public sectors.

- Current account is likely to maintain a surplus in 2016, albeit at a slower pace. As a ratio to GDP, current account will probably slow to 1.5% in 2016 as the healthy net trades is offset by the outflows in the services and incomes accounts. Current account has dwindled significantly in 2015. The current account surplus is projected to moderate further in 2016 but we do not expect a reversal from surplus to deficit. YTD 3Q15, current account registered at 2.7% of GDP, compared to full-year 2014 when it registered a surplus of 4.3%. Malaysia’s economic sentiments remained lacklustre despite stable economic fundamentals. While net trades remained healthy, further outflows in the income accounts will put a strain on the current account surplus going forth.

- Per capita income probably slowed in 2015. According to the IMF, Malaysia’s national per capita income stood at USD11,049 in 2014 and is expected to slide slightly to USD10,073 in 2015. In order to attain the target of RM15,000 per capita income by 2020, nominal GDP is expected to advance by an average of 10.8% per annum. Nominal GDP growth probably slowed in 2015 on the back of the relatively slower rate of inflation and softer economic growth. Nominal GDP is unlikely to register a strong acceleration in growth in 2016 as well, given the economic constraints. Based on the government’s projection, we note that nominal GDP probably registered a slower growth rate of 4.9% in 2015 (vs. 8.6% in 2014).

- Accommodative monetary policy. The current monetary policy is accommodative and in support of growth in a stable price environment. Our year-end target for OPR is 3.25% for 2016 (year-end 2015: 3.25%). As of YTD October 2015, prices have risen by an average of 2.0% YoY. We envisage full-year inflation to register an average growth of 2.3% in 2015. Prices are expected to increase further in 2016. Inflation could escalate to an average of 3.1% in 2016 as the government raises prices of goods and reduces subsidies.

- Challenges to the economy, domestic and global. Within the domestic front, high levels of household indebtedness remains a major challenge for the domestic economy. More loans were delinquent as gross impaired loans grew by another 2.4% QoQ in 3Q15. In the global arena, challenges for global trades include the weak global crude oil prices and weak sentiments amid the ongoing crisis in Europe. Also, stronger-than-expected growth for Malaysia’s exports to the US will likely be mitigated by the slowdown in China.

Source: AmeSecurities Research - 3 Dec 2015