• We trim our 2015 global growth forecast to 3.4% from 3.5% previously (2014: +3.4%) to reflect softer growth projections in the US and China which are offset somewhat by an upward adjustment in euro zone growth.
• Notwithstanding an overall mild improvement in the advanced countries, emerging economies continue to undergo growth moderation mainly on account of lacklustre global demand, volatile capital flows, structural reforms and reliance on the commodity sector.
• US growth projection is lowered to 2.5% mainly on 1Q transitory effects. Latest indicators suggest a modest catchup in 2Q15 with growth momentum persisting into 2H15. We maintain our forecast of rate liftoff in Sep/Oct 2015. Rate hike thereafter is expected to be gradual, at best a total of 100bps in 2016.
• We expect strength of US$ vis-à-vis regional currencies to be sustained in 2H15 given continued divergence in monetary policy in key economies.
• Emerging economies reverse course to become major drag on global growth on account of volatile capital flows, weak commodity prices and structural issues.
• We see more downside risk to China’s growth outlook in 2H15 despite the recent aggressive policy responses to stabilise growth and the stock market.
• Closer at home, we maintain our 2015 GDP growth forecast for Malaysia at 5.0%. We expect a modest domestic demand recovery in 2H15 after a 2Q pullback due to GST imposition.
• Private consumption growth is projected to gradually return to historically trend of 6-7% in 4Q15 as GST impact is offset by still steady jobs market and mitigating measures.
• We raise our forecast of current account surplus to RM28bn in 2015 given a higher oil price assumption of US$60/bbl, weaker MYR (translation gain and export competitiveness), higher commodity export volume and lower import elasticity.
• Despite noises on fiscal flexibility, we opine that fiscal deficit of 3.2% of GDP is achievable, supported by on-target GST collection, scrapping of fuel subsidy scheme and rationalisation in expenses. Higher oil prices may provide an upside surprise to oil-related revenue.
• We maintain our inflation forecast at 2.5% for 2015, with a peak in 3Q15. The lower-than-expected GST impact is offset by higher fuel pump prices and potential imported inflation via weaker MYR.
• We expect BNM to stand pat in 2H15 given moderate growth outlook, limited inflation risk and contained risk of financial imbalances.
• We expect MYR to remain under pressure as negative sentiment overshadows fundamental amid volatile global financial market and unfavourable domestic newsflow.

Source: Hong Leong Investment Bank Research - 7 Jul 2015