We anticipate global economy to grow at a subdued pace of +3.0% YoY (2019e: +3.0% YoY), slightly lower than IMF projection of +3.4% YoY. While there is some optimism on a Phase 1 trade deal, we opine downside risk will persist as it is unlikely for US and China to reach a comprehensive trade deal that eliminates all tariffs in a definitive manner. At home, we forecast Malaysia to grow at a slightly more modest pace of +4.4% YoY (2019e: +4.5% YoY) as private consumption is expected to ease amid modest investment and trade performance. While mining sector is anticipated to rebound in 2020, manufacturing and services sectors are expected to be slower. We anticipate inflation to trend higher to 2.0% YoY in 2020 (2019e: 0.7% YoY) due to policy measures. We expect BNM to reduce the OPR by 25bps by 1H2020.

Modest global GDP. We expect the world economy to grow at a steady pace of 3.0% YoY (2019: 3.0% YoY), lower than IMF forecast of 3.4% YoY.

Advanced economies expected to moderate. US is expected to record a moderation as prolonged trade uncertainty is anticipated to affect business investment further, with dampening effect on labour market. Eurozone and Japan are also anticipated to record modest growth as external demand remains weak. China is expected to grow at a slower pace with continued policy fine-tuning to provide some cushion against earlier focus on deleveraging efforts and slower external demand.

Prolonged easy monetary conditions. With central bankers reversing course to inject more liquidity into the system via policy rate cuts and expansion of balance sheet in 2019, we opine major central banks will undertake a more gradual easing approach unless global conditions deteriorate significantly. The easy monetary policy condition is expected to provide a positive backstop to financial markets amid uncertain global environment.

Malaysia GDP to be slightly lower. We expect Malaysia to grow at a slightly lower pace of +4.4% YoY (2019e: +4.5% YoY), as private consumption eases while investment and exports remain tepid against high global trade uncertainty. Private consumption is anticipated to grow at a slower pace (+7.0% YoY; 2019e: +7.4% YoY). On the supply side, the mining sector is anticipated to see a marginal rebound as production constraints eases. However, agriculture, manufacturing and services sectors are anticipated to be subdued in line with weak global and domestic demand.

Current account to ease, but remain in surplus. CA surplus is expected to be lower at RM30bn; 1.9% of GDP (2019e: RM55bn; 3.6% of GDP) on account of narrower goods surplus, continued deficit in the services, primary income and secondary income. The goods surplus is expected to narrow as import growth is expected to outpace export growth due to implementation of projects that were previously put on hold.

Fiscal deficit target of -3.2% of GDP achievable. While headline 2020 deficit of -3.2% of GDP was within expectation, total spending and revenue was larger than our estimate. Nevertheless, we opine the target is achievable as government manages the pace of spending, in line with revenue collection or domestic needs.

Higher inflation in 2020. We expect inflation to trend higher to 2.0% YoY (2019e: +0.7% YoY), driven by removal of blanket petrol subsidy.

BNM to have an easing bias. Against the backdrop of trade uncertainty and slower underlying demand, we expect BNM to reduce the OPR by 25bps by end-1H 2020.

Source: Hong Leong Investment Bank Research - 4 Dec 2019