BNM projected 2019 GDP at 4.3-4.8% YoY, with a point forecast of +4.7% YoY (2018: +4.7% YoY), driven by domestic demand and restocking activity. Inflation is anticipated to be stable at 0.7-1.7% YoY (2018: +1.0% YoY) on account of lower global oil prices and petrol price ceiling (RM2.08/litre; previous RM2.30/litre). While BNM may continue to sound cautious, the baseline forecast point to steady GDP of +4.7% YoY, within potential GDP of +4.6-5.1% YoY. Hence, we opine MPC will retain the OPR at 3.25% unless external environment deteriorates further.

DATA HIGHLIGHTS

BNM’s projection for 2019 GDP is +4.3-4.8% YoY (point forecast: +4.7% YoY), lower than MOF’s earlier projection of +4.9% YoY (published on 2 Nov 2018). Overall, BNM expects growth to be sustained from 2018 GDP of +4.7% YoY.

On the demand side, domestic demand will contribute positively to growth (+4.1ppt; 2018: +5.2ppt). Private consumption is anticipated to register a more moderate pace, but remain close to the long-term average at 6.6% YoY (1990-2018: +6.7% YoY). Private investment is anticipated to continue its expansion (+4.9% YoY; 2018: +4.5% YoY) following ongoing projects in manufacturing and services sectors. Restocking activity is also anticipated to be supportive of GDP (+0.6 ppt; -1.5 ppt) as firms are expected to adjust their inventory levels higher. Meanwhile, external demand is anticipated to be neutral (0 ppt; 2018: +1.0 ppt) following slower global growth. On the supply side, growth is anticipated to be driven by recovery from commodity sector amid moderation in services and manufacturing sectors.

Following slower global growth and sustained domestic demand, current account is expected to be lower, but remain positive (1.5-2.5% of GNI; 2018: 2.4%). Imports are anticipated to be supported by turnaround in intermediate and capital imports.

On inflation, BNM introduced a lower forecast at 0.7-1.7% YoY compared to MOF’s earlier projection of 2.5-3.5% YoY. This is broadly stable compared to 2018 (+1.0% YoY). The lower projections reflect lower global oil prices (BNM forecast USD60- 70/pb) and implementation of price ceiling on retail petrol prices (RM2.08/litre; previous: RM2.30). Nevertheless, core inflation is anticipated to be contained.

BNM notes that the risk confronting the economic outlook is skewed to the downside, mainly from the global environment. Unresolved trade tension, slower-than-expected global growth and uncertain monetary policy normalisation remain key risks.

On financial stability front, BNM assessed that risks to financial stability were largely contained. Household debt was sustained at 83% of GDP (2017: 83.8% of GDP). Nevertheless, authorities remain vigilant on downside risks.

On monetary policy, BNM noted that MPC will closely monitor global and domestic developments for the potential impact to growth and inflation. BNM reiterated that at the current level of OPR, the stance of monetary policy remains accommodative and supportive of economic activity.

HLIB’s VIEW

Our 2019 GDP projection of +4.6% is within BNM’s projected range. While BNM may continue to sound cautious, the baseline forecast points to steady GDP, within the potential output of +4.6-5.1% YoY, Hence, we opine that MPC will retain the OPR unless external environment deteriorates further.

Source: Hong Leong Investment Bank Research - 28 March 2019