MARC expects economic growth of 5.3% this year

It says ‘rising tide’ of inward-looking trade policies headed by the US has led to market uncertainty


Malaysian Rating Corp Bhd (MARC) forecasts an economic growth of 5.3% for Malaysia in 2018, lower than the figure by Bank Negara Malaysia (BNM), due to a less bullish outlook on export growth.

The central bank has projected a real gross domestic product (GDP) growth of between 5.5% and 6% for this year.

“While we concur with the view of a large contribution from domestic demand to headline growth in 2018, we feel the momentum in global trade holds the key to a sustained GDP growth this year,” MARC chief economist Nor Zahidi Alias (picture) noted in a report last Friday, adding that it expects real exports to expand by 6% this year.

“While we think that Malaysia’s net trade could improve and contribute positively to headline growth in 2018, we are less sanguine about the momentum of the export performance compared to the scenario envisioned by BNM.”

MARC said the “rising tide” of inward-looking trade policies headed by the US has led to market uncertainty and raised the possibility of trade frictions among trading nations.

“If this materialises, it could slightly dent the prospects of global trade in 2018,” the agency said.

“In particular, possible ramifications from trade friction between the US and China could lead to further measures being imposed by the latter — which could affect trade-dependent Asian economies such as Malaysia.”

Domestically, MARC said the property and oil and gas (O&G) sectors remain challenging due to oversupply and debt issues facing the respective sectors.

“The performance of the property sector remains a concern as the incoming supply of space, both in the office and retail segments, continues to outstrip demand in the medium term,” it said.

“As a consequence, occupancy levels and rental rates will continue to be under pressure.”

According to BNM, unsold units for residences rose by 22.7% year-on-year to 129,042 units at the end of September last year, 80% of which were priced above RM250,000.

MARC said the government-led initiative to freeze the development of new luxury properties should alleviate pressures in the housing sector, while 73% of outstanding housing loans retained a “sound” loan-to-value ratio of 80% and below.

Housing delinquencies and impaired loans also improved to a low of 1.3% and 1% respectively, it noted.

For upstream O&G corporates, the rating agency said the sector struggled to improve their liquidity position with debt-at-risk rising 22.1% of total debt last year against the 18.2% increase noted in 2016.

In comparison, non-financial corporates in the property space saw their debt-at-risk increasing to 12.4% versus the 7.9% in 2016, it said.

“Despite the weakening, the risks to the domestic financial stability from exposures to property and O&G sectors remained low.”

It said the overall performance of the banking sector remained stable with key metrics — namely the common equity tier-1 (CET1) ratio and total capital adequacy ratio (CAR) — showing signs of improvement.

“The capital levels provide a strong buffer against the impact from the adoption of Malaysian Financial Reporting Standards 9,” it said, adding that additional provisions will largely be offset by banks’ regulatory reserves.

The CET1 and CAR ratios were higher at 13.3% and 17.1% respectively in 2017.

MARC forecasts gross loans to increase by 4%-5% this year, underpinned by the expected improvement in corporate activities coupled with the sustained household appetite for loans.

Overall, the agency anticipates a stronger domestic economy on a resilient export sector boosting demand, which it said supports firmer consumer spending and investments going forward.

It said consumer spending growth could be sustained above 7% this year, with private consumption to normalise around 70% — up from the 62.9% recorded in 2017.

“As for private investment, we anticipate its growth to pick up to 7.3% in 2018, less than BNM’s forecast of a 9.1% expansion as corporate activities normalise despite favourable flows of foreign direct investment.”

MARC said the Overnight Policy Rate is unlikely to be raised for a second time this year after interest rates were revised upward to 3.25% on expectations of a moderating economy growth and a benign inflation environment with a consumer price index growth of 2.3% to 2.8%.