• Global economy to worsen on trade wars and geopolitical tensions

• Ringgit expected to hover at RM4.20/USD in 3Q19, before rebounding to RM4.15/USD by end-2019

• Malaysia forecast to register moderate GDP growth of 4.5% in 2019 (vs +4.7% in 2018)

• BNM may consider another rate cut in Nov to boost economy

Worsening global economy

The global economy has worsened further since the start of the year. Economic growth in advanced and emerging economies has declined amidst ongoing headwinds such as the USChina and Japan-Korea trade wars, protectionist policies and geopolitical tensions.

According to the International Monetary Fund’s (IMF) latest July World Economic Outlook (WEO) report, global gross domestic product (GDP) growth has been revised to 3.2% y-o-y in 2019 (vs 3.3% previously) and 3.5% y-o-y in 2020, its fourth downward revision since its Oct 2018 WEO report.

Meanwhile, the World Bank has also revised downwards its global GDP growth to 2.6% y-oy in 2019 (vs 2.9% previously) and 2.7% y-o-y in 2020, to reflect subdued global trade due to heightened uncertainties caused by key factors stated above.

Global exports and imports growth contracted 2.7% y-o-y and 3.1% y-o-y in 1Q19. These were in line with estimates, in view of weaker global trade activities due to the ongoing trade tensions.

Malaysia is a small and trade-dependent open economy. It is difficult to avoid negative spillover effects from external headwinds, as we are currently on a cyclical global economic downturn.

However, Malaysia’s growth is still resilient, albeit on a downtrend based on recent economic data. 2019 GDP is expected to grow 4.5% y-o-y (vs. +4.7% in 2018) and trend higher in 2020.

The growth in 2020 will likely be driven by improving consumer sentiment due to; i) government initiatives in Budget 2020 that is expected to be expansionary and, ii) the absence of new taxes, as guided by the government recently to support private consumption growth.

Other short-term boosts will likely be from approved mega projects such as the East Coast Railway Link (ECRL), land reclamation works of the Penang Transport Master Plan and Pan Borneo Highway.

Source: Alliance Research - 14 Aug 2019