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Transcript of CONSENSUS FORECAST - FocusEconomics · PDF fileBank Negara Malaysia stated that global...

  • CONSENSUS FORECAST

    MALAYSIA 2 CALENDAR 12 NOTES 14

    Contributors ARNE POHLMAN Chief Economist ARMANDO CICCARELLI Head of Research RICARDO ACEVES Senior Economist RICARD TORNÉ Senior Economist

    OLGA COSCODAN Economist CARL KELLY Economist TERESA KERSTING Economist DIRINA MANÇELLARI Economist

    ANGELA BOUZANIS Economist CECILIA SIMKIEVICH Economist MIRIAM DOWD Editor

    PUBLICATION DATE 24 March 2015 FORECASTS COLLECTED 18 March - 23 March 2015

    INFORMATION AVAILABLE Up to and including 23 March 2015 NEXT EDITION 28 April 2015

    Malaysia • April 2015

  • FOCUSECONOMICS Malaysia

    FocusEconomics Consensus Forecast | 2

    April 2015

    Malaysia

    REAL SECTOR | Growth in industrial production moderates in January Industrial production increased 7.0% in January over the same month of last year. The figure came in below the 7.4% increase tallied in December and was in line with market expectations. January’s increase was driven by improvements in the mining and electricity sectors. Conversely, growth in manufacturing production slowed compared to the previous month.

    On a monthly basis, industrial production decreased a seasonally-adjusted 1.6% in January, which contrasted the 1.9% rise registered in the previous month. Despite January’s deterioration, annual average growth in industrial production edged up from 5.1% in December to 5.4% in January, which marked the highest reading since February 2011.

    FocusEconomics Consensus Forecast panelists project that industrial production will grow 3.8% in 2015, which is down 0.2 percentage points from last month’s projection. In 2016, the panel expects industrial output to expand 4.4%.

    The government sees GDP growing between 4.5% and 5.5% in 2015. FocusEconomics Consensus Forecast panelists expect GDP to grow 4.9% in

    Outlook moderates

    LONG-TERM TRENDS | 3-year averages

    Cecilia Simkievich Economist

    Malaysia

    2011-13 2014-16 2017-19 Population (million): 29.5 31.0 32.6 GDP (USD bn): 304 333 445 GDP per capita (USD): 10,385 10,668 13,640 GDP growth (%): 5.2 5.3 5.1 Fiscal Balance (% of GDP): -4.4 -3.3 -2.7 Public Debt (% of GDP): 53.2 53.1 50.7 Inflation (%): 2.3 3.0 2.8 Current Account (% of GDP): 7.1 3.8 3.2 External Debt (% of GDP): 53.3 65.4 53.5

     The Malaysian economy recorded a solid 6.0% expansion last year, accelerating from the 4.7% increase tallied in the previous year. Recent data suggest that the economy has lost some momentum in the first months of the year. Industrial production moderated in January, whereas exports posted the worst performance in almost two years. Looking forward, low oil prices will continue to weigh on the country’s balance of payments as well as on its fiscal accounts. Moreover, the government recently decided to increase its 2015 fiscal deficit target from 3.0% of GDP to 3.2% of GDP on the expectation of lower oil revenues.

     The Malaysian economy is expected to post healthy growth again this year, although it will decelerate from the strong expansion recorded in 2014. FocusEconomics Consensus Forecast panelists expect GDP to expand 4.9% in 2015, which is down 0.1 percentage points from last month’s forecast. For 2016, the panel sees GDP growing 5.1%.

     Inflation fell from 1.0% in January to 0.1% in February, which marked an over-five-year low. Inflationary pressures are expected to increase after the Goods and Services Tax (GST) is introduced in April. At its 5 March meeting, the Central Bank decided to maintain the overnight rate unchanged at 3.25%. The decision came amid ongoing currency weakness and the imminent normalization of the U.S. Federal Reserve’s monetary policy. FocusEconomics Consensus Forecast panelists expect inflation to average 3.0% both in 2015 and 2016.

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    Jan-13 Jul-13 Jan-14 Jul-14 Jan-15

    Year-on-year

    Annual average

    %

    Industrial Production | variation in %

    Note: Annual changes of industrial production index and annual average growth rate in %. Source: Department of Statistics Malaysia (DSM).

  • FOCUSECONOMICS Malaysia

    FocusEconomics Consensus Forecast | 3

    April 2015

    2015, which is down 0.1 percentage points from last month’s projection. For 2016, the panel foresees the economy growing 5.1%.

    MONETARY SECTOR | Inflation drops to over-five-year low in February Consumer prices declined 0.6% in February over the previous month, which marked a less-pronounced drop than the 1.1% fall tallied in January. As in the previous month, February’s result was mainly driven by a sharp fall in prices for transport. Prices for food and non-alcoholic beverages as well as for non- durable goods also dropped compared to the previous month. Conversely, prices for housing and healthcare were higher than in January.

    Annual inflation dropped from 1.0% in January to 0.1% in February, which marked an over-five-year low. The result slightly undershot the 0.2% that the market had expected. As a result of February’s sharp slowdown, annual average inflation edged down from January’s 2.9% to 2.7% in February.

    The government projects inflation to range between 2.5% and 3.5% in 2015. FocusEconomics Consensus Forecast panelists expect inflation to average 3.0% in 2015, which is down 0.5 percentage points from last month’s projection. For 2016, the panel sees inflation also averaging 3.0%.

    MONETARY SECTOR | Central Bank holds rate steady at 3.25% At its 5 March monetary policy meeting, the Central Bank decided to leave the Overnight Policy Rate (OPR) unchanged at 3.25%. The decision was in line with market expectations.

    Bank Negara Malaysia stated that global economic growth continues to expand at a moderate pace in spite of varying performance across countries. Downside risks to growth will likely emerge from the weakening of major economies such as China and Japan. On the domestic front, Malaysia’s economic growth continues to be supported mainly by domestic demand, while exports moderated in the last quarter of 2014. The Bank pointed out that, “going forward, domestic demand will remain as a key driver of growth. While the introduction of the Goods and Services Tax and the lower earnings in the commodity sector are expected to have some impact on private consumption, household spending will continue to be supported by the steady increase in income and employment.”

    Consumer prices declined further in January and the Central Bank recognized that inflation will likely remain low in the first quarter of the year. The Bank stated that inflation is likely to trend higher in the subsequent quarters as, “lower fuel prices will partially offset other domestic cost factors.” However, prices are expected to remain below their historical average throughout the year.

    Finally, the Bank remarked that, “the current stance of monetary policy remains accommodative and is assessed to be appropriate given the developments in monetary and financial conditions.” The Bank signaled that it would remain vigilant regarding external and domestic developments to ensure that its monetary policy stance is consistent with any changes in the economy’s growth outlook

    Panelists expect the monetary policy rate to end this year at 3.24%. The panel expects the policy rate to end 2016 at 3.32%.

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    Feb-13 Aug-13 Feb-14 Aug-14 Feb-15

    Month-on-month (left scale) Year-on-year (right scale)

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    Inflation | Consumer Price Index

    Note: Annual and monthly variation of consumer price index in %. Source: Department of Statistics Malaysia (DSM).

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    Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15

    %

    Monetary Policy Rate | in %

    Note: Overnight Policy Rate in %. Source: Bank Negara Malaysia (BNM).

  • FOCUSECONOMICS Malaysia

    FocusEconomics Consensus Forecast | 4

    April 2015

    MONETARY SECTOR | Malaysian ringgit continues to weaken in 2015, hits multi-year low in March The Malaysian ringgit (MYR) hit a multi-year low of 3.71 MYR per USD on 16 March, which was 3.5% weaker than on the same day of the previous month and 13.0% weaker on an annual basis. Moreover, the ringgit was the second poorest performing Asian currency in Q1 2015 after the Indonesian rupiah. The MYR has depreciated 6.0% against the USD so far this year, and the expected upcoming hike in the U.S. Federal Reserve’s interest rates will likely lead the currency to weaken further in the coming months.

    The depreciation of the Malaysian ringgit began in the second half of 2014 when global prices for oil started to decline. As a net oil exporter, Malaysia has particularly felt the impact of the fall in energy prices. Exports decelerated markedly throughout 2014 and that led to a significant deterioration in external accounts, which translated into a weaker ringgit. On top of this, the MYR has also been affected by the strengthening of the U.S. dollar, resulting from solid economic growth in the U.S. Against that background, the Malaysian ringgit has been losing value uninterruptedly since August last year: from a peak of 3.16 MYR per USD on 22 August 2014, the currency depreciated 17.0% to a low of 3.71 MYR per USD on 16 March 2015.

    FocusEconomics Consensus Forecast panelists expect the Malaysian ringgit to end 2015 at 3.60 MYR per USD. The panel sees the Malaysian currency clos