Highlight Malaysia's GDP growth will likely slow further in 2016; ringgit will stabilise, says Moody's

by **Cals** Tue 12 Apr 2016, 01:30

Highlight

[size=28]Malaysia's GDP growth will likely slow further in 2016; ringgit will stabilise, says Moody's

By Surin Murugiah / theedgemarkets.com | April 11, 2016 : 1:44 PM MYT

KUALA LUMPUR (April 11): Malaysia's real gross domestic product (GDP) growth will slow to 4%–4.5% in 2016 from 5% in 2015, according to a poll conducted by Moody's Investors Service.

In a statement today, a Moody's vice president and senior research analyst Rahul Ghosh said the poll findings were in line with Moody's view that Malaysia's headline real GDP growth rate will slow to 4.4% in 2016, although there are downside risks to this view.

Ghosh said given the open nature of its economy — with exports and imports combined accounting for 131% of GDP — Malaysia is susceptible to a prolonged period of subdued global demand and weaker commodity prices, which will result in slower investment demand, and downward pressure on exports and government receipts.

Ghosh also explained that Malaysia's high household debt burden — equivalent to 89.1% of GDP in 2015 — will constrain the ability of private consumption to support domestic demand.

The statement was in conjunction with Moody's just-released report titled Malaysia — Inside ASEAN: The View from Malaysia.

As for the Malaysian ringgit, Moody's said the broad view among market participants was that the currency has improved significantly, and that the ringgit will show stability against the US dollar (USD) over the next 12 months.

It said of the respondents polled, 53% expect the ringgit to consolidate in a range of RM4.00–RM4.20 against the USD over the next 12 months, and roughly a third expect a mild appreciation, within a range of RM3.50–RM4.00/USD.

Moody's said that the recent let-up in dollar appreciation, together with an improvement in Malaysia's trade surplus and foreign exchange reserve position, provides a reasonably supportive backdrop for the ringgit.

"And, even if the ringgit were to remain weak, or embark on a renewed depreciatory trend, the overall exposure of Malaysia's sovereign and banks to foreign exchange risks would remain manageable," it said.

Moody's pointed out that the predominance of funding in the local currency meant that weakness in the ringgit has not led to increased debt distress in the corporate and banking sectors, and the knock-on impact on interest rates has remained muted.

It said that Malaysian government foreign-currency denominated debt accounted for just 3.4% of the total government debt at end-2015.

"Meanwhile, the net open foreign exchange positions of Malaysian banks represent a modest 1% to 5% of their capital levels, and most foreign exchange loans are granted to exporters, which will balance the risk of currency volatility," it said.

As for the banks, said Moddy's, of the participants surveyed at the event, 40% believe high household leverage poses the greatest risk to Malaysian banks in the coming 12 months, followed by corporate defaults, which garnered 27% of total votes.

It said the slowdown in China, weak commodity prices and local property market trends each received roughly 10% to 12% of the votes.

Moody's view is that Malaysian banks face rising credit risks in 2016, as slower growth and weaker corporate and household balance sheets challenge asset quality.

On the exposure of Malaysian banks to the oil and gas sector, it said, 54% of people polled expressed slight concerns, but believe that most oil and gas companies remain in good shape, and therefore such exposures will be manageable for the banks.

Moody's further points out that of the participants polled, 47% said that governance concerns represent the largest structural challenge to Malaysia's medium-term growth, while 27% cited high private sector indebtedness.
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