• Weak global growth trend to continue. Global growth is expected to remain challenging in 2H16 as downside risks remain high (uncertain US rate hike cycle, long-term implications of Brexit, protracted slowdown in the Chinese economy and still-weak commodity prices). Reflecting softer growth projections for the US and commodity exporting countries, we trim our global growth forecast to 3.0% (previously 3.4%), the slowest pace since GFC.

• US growth outlook is still decent, supported mainly by an expected pick-up in consumption. We opine that US labour market conditions still appear favourable which will lead to rising household spending and strong inflation expectations. Weighed down by weak 1Q 2016 GDP, oil-related industries and exports, we trim our 2016 GDP growth forecast to 1.9% and expect FOMC to hike once (+25bps) in Dec 2016.

• Brexit will have long-term implications on the euro zone via lower confidence and economic policy uncertainty. Growth is expected to stabilise at 1.6%, supported mainly by domestic demand. We expect the ECB to wait for the impact of its previous round of massive easing since March before launching further monetary easing.

• Japan is in slow and bumpy lane as Yen appreciation put renewed pressure on exports and corporate profits. We expect BOJ to expand its QQE as soon as its policy meeting on 29 July and introduction of fiscal stimulus package.

• China to arrest growth slowdown in 2H16 riding on an expansionary fiscal stance with additional monetary tools at disposal. We still expect China GDP growth to average 6.5% in 2016.

• Malaysia: Stabilisation of growth in 2H16 is expected after a soft patch in 2Q16 (weak agriculture caused by El Nino). Growth will be supported by a modest recovery in consumption (induced by income measures), robust construction (strong pipeline of infra projects) and recovery in agriculture output. We maintain our 2016 full-year GDP growth forecast at 4.2%.

• Current account surplus to taper in 2H16 affected by diminishing currency translation gain and higher capital imports amid slower global growth. We maintain our full year current account surplus projection at RM10bn.

• BNM to stand pat on OPR despite higher risk of undershooting BNM’s growth target brought about by heightened external uncertainties. We do not think that growth outlook has been severely undermined while growth catalysts such as income measures and strong pipeline of projects are in place to provide necessary growth support.

• MYR to range bound in 2H16. We opine that US$ will maintain its strength on growth and interest rate differential. Locally, corporate earnings outlook remains weak while trade surplus is expected to narrow. We maintain our MYR forecast range at RM4.00-4.20/US$ in 2H16.

Source: Hong Leong Investment Bank Research - 12 Jul 2016