UOB: 2020 GDP growth to slow to 4.4% but upward revision possible

Steady private consumption levels alongside the economy’s underlying strengths will also help mitigate against external pressures, says economist

by NUR HAZIQAH A MALEK / pic by MUHD AMIN NAHARUL

MALAYSIA’S economic growth is expected to slow to 4.4% in 2020, but this could change if private consumption growth is robust and investment approvals are materialised, United Overseas Bank (M) Bhd (UOB Malaysia) said.

UOB Malaysia is currently projecting GDP growth to come in at 4.6% this year, 20 basis points (bps) higher than the 2020 forecast of 4.4%.

“We see robust private consumption as the underlying anchor for economic growth and investments could still be ascertained as the contribution of private sector spending accounts for 77% of the country’s GDP,” its senior economist Julia Goh (picture) said at an economic outlook presentation in Kuala Lumpur yesterday.

Steady private consumption levels alongside the economy’s underlying strengths will also help mitigate against external pressures, she added.

“These include escalating trade disputes between the US and China, and the resulting slowdown in global manufacturing and trade. “However, the slowing global economy as well as lower foreign and public investments could weigh on domestic growth, so as such, we expect Malaysia’s economy to expand moderately at 4.4% instead of going with the potential growth of 5% in 2020,” she said.

A potential factor to drive investors’ confidence next year would be a positive review from FTSE Russell’s World Government Bond Index (WGBI).

The index provider has kept Malaysian bonds on its WGBI watchlist since April 2019, with the next review due in March 2020.

“UOB Malaysia remains positive that FTSE Russell will ultimately retain Malaysia in the WGBI, but lower the country’s weightage in the index from 0.4% to 0.3%,” Goh said.

Government spending could also lead to further growth for the upcoming year, with RM3 billion worth of preemptive measures put in place to support economic growth under Budget 2020.

However, uncertainty lingers around the efficiency and effectiveness of public spending, Goh noted. Meanwhile, ongoing policy reforms are expected to further support domestic growth via higher value-added labour, capital and technology.

UOB Malaysia expects the central bank to lower the Overnight Policy Rate (OPR) by 25bps to 2.75% in the first quarter of 2020, in line with a wider trend by global central banks to move preemptively to mitigate downside growth risk and offset the negative impact of trade tensions.

The Institute of Chartered Accountants in England and Wales (ICAEW) has a more muted outlook on Malaysia’s economic growth, with a projection of 4.4% GDP expansion in 2019 and 4% in 2020.

“As several tailwinds that have supported growth — notably household spending — continue to fade, the effects of the sluggish global environment will start to have a larger impact on the domestic economy,” ICAEW said in a statement yesterday.