Moody’s cuts Malaysia’s 2016 GDP growth to 4.5%

by **Cals** Thu 10 Sep 2015, 00:42

Moody’s cuts Malaysia’s 2016 GDP growth to 4.5%

By Chen Shaua Fui & Surin Murugiah / digitaledge Daily | September 9, 2015 : 9:58 AM MYT

KUALA LUMPUR: [size=16]Moody’s Investor Service has cut its gross domestic product (GDP) growth forecast for Malaysia to 4.5% next year from 5%, but maintained its GDP growth forecast of 4.8% for the country this year.

In a note on the Asia-Pacific region yesterday, Moody’s said the weakening sentiment is cooling private sector consumption and investment, compounding soft external demand conditions.

“We continue to project GDP to increase 4.8% this year, but now see growth weakening to 4.5% next year,” it said.

The rating agency also trimmed its forecasts for GDP growth for many Asia-Pacific sovereigns, as indicators suggest the pace of economic expansion across Asia-Pacific is cooling.

“We previously expected regional output to pick up from this year to next. We now expect a slower but solid rate of growth in both 2015 and 2016,” it added.

It said weak demand from China has dampened the overall export outlook for the region, while softer commodity prices weigh on some sovereigns’ export revenues, external positions and fiscal balances.

Moreover, it said, households are saving more of income gains from lower energy costs than expected, while market volatility and political risk are also weighing on confidence.

“Our 2016 forecast for China is a shade lower at 6.3%, down from 6.5%. But the slowing is most marked elsewhere in emerging Asia. We now see Asia-Pacific — excluding China, India and Japan — growing 3% this year and 3.2% next, down from our forecasts of 3.6% and 4% in May,” Moody’s said.

Although lower growth is negative, Moody’s said sovereign credit quality in the region remains intact. On average, it is still stronger than in most other regions and the risk of deflation is minimal, it said.

“In addition, government debt-to-GDP levels are largely moderate, offering some space for fiscal stimulus. As such, we expect Asian sovereign credit profiles to remain resilient to the growth slowdown,” it said.

In a separate statement, Moody’s said the depreciation in the Malaysian ringgit is manageable for the sovereign (A3 positive), banks and rated corporates, although it indicates a weakening environment.

It also views the ringgit depreciation as a symptom of declining export revenues, capital outflows, and worsening investor sentiment toward Malaysia, which is negatively impacting key credit buffers such as the current account surplus, foreign reserve coverage, and economic growth trajectory.

The Malaysian ringgit has depreciated by about a third against the US dollar in the past 12 months. At the close of trading hours yesterday, the ringgit was at 4.3393 against the US dollar, compared with its close of 4.3300 on Monday.

Moody’s vice president and senior research analyst Rahul Ghosh said although Moody’s expects its rated corporates — which had natural hedges and better flexibility despite external funding exposure — to weather the weaker ringgit, lower Brent crude and palm oil prices will weigh on commodity producers’ cash generation and earnings.

The majority of market participants surveyed by the rating agency expect the ringgit and oil prices to stabilise; 44% expect the ringgit to remain rangebound between RM4 and RM4.50 against the US dollar, and 62% expect Brent crude to average US$45 to US$55 per barrel in the coming 12 months.

Its poll also showed market participants viewed China’s growth slowdown as the largest risk for Malaysian banks, followed by weakness in the ringgit.

“From Moody’s perspective, Malaysian banks’ direct exposure to China is limited, but domestic asset quality may be pressured, given Malaysia’s export exposure to the mainland,” it said.

In terms of foreign exchange vulnerability, Moody’s said foreign currency loans and foreign currency borrowings by Malaysian banks form a modest share of their overall balance sheets.

This article first appeared in digitaledge Daily, on September 9, 201
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