Malaysia`s economic growth forecast remains at 4.9 per cent year-on-year (YoY) for 2019 given the upbeat performance of domestic and external trade sectors, according to MIDF Research.

In its research report on Malaysia Equity titled: 2Q 2019 Outlook, the research house said domestic economy continues to be resilient as it expects Bank Negara to maintain the overnight policy rate (OPR) at 3.25 per cent next year, amid a 2.2 per cent inflation forecast.

Further, a continuous current account surplus could support to strengthen the ringgit to US dollar/RM 4.00 level this year end, the firm noted.

"We foresee geopolitical events to cast a shadow on investors` sentiment on our equity market. We opine that corporate Malaysia will still see decent earnings growth. Hence, we reiterate our year-end 2019 FBM KLCI baseline target to 1,800 points," it said.

MIDF Research said Malaysia`s positive growth moment continues as the risks expected to subside due to clarity in domestic policy direction observed through mid-term review of 11th Malaysia Plan and the Budget 2019, which would lend supports to both domestic and external sectors.

"The new economic direction which focuses on free market and investor-friendly will also have significant impacts on overall business confidence and investment flows."

MIDF Research said the growth of Malaysian economy this year will be influenced by various internal and external factors such as trajectories of global trade, threat of protectionism, global financial stability, geopolitical risks, commodities prices, stable labour market and improved business and consumer sentiments.

"Moderation in global trade seen in 2018 is expected to continue in 2019. As the pace of Chinese growth is expected to moderate progressively in 2019 and beyond, the import demand from the country is projected to ease. Hence, it will result in a slower pace of expansions in Malaysia exports in 2019."

The research firm also noted that Malaysia`s gross domestic product (GDP) growth expanded 4.7 per cent YoY in the fourth-quarter of 2018, above market expectations of 4.5 per cent YoY.

For the full year 2018, Malaysia`s economy expanded 4.8 per cent, underpinned by the improved performances of external trade, industrial activities and sustained solid domestic demand.

"We opine the solid GDP growth was mainly due to external factors particularly receding trade war effects and modest recovery in mining sector especially crude petroleum and liquefied natural gas.

"Moderating inflationary pressure, strengthening domestic demand and accommodative economic policies as well as strong re-exports growth would also continue driving up the GDP performance in the last quarter of 2018."

MIDF Research forecast Malaysia`s GDP likely to grow by 4.9 per cent for this year, based on the current developments and indicators, given the upbeat performance of domestic and external trade sectors.

"Gradual pick-up in global commodity prices would lend another boosting factor to the economic growth this year. Besides that, supportive economic policies, stable labour market, continued wage growth and tame inflation will support and spur domestic economy."

MIDF Research said the country`s overall business performance is expected to improve modestly, citing that the first-half (1H) of 2019 would stay on expansionary path.

"Overall business performance in 1H of 2019 is expected to enjoy steady pick-up especially for agriculture, manufacturing and services sectors. Strong domestic demand and low inflationary pressure are fundamental factors supporting services sectors."

On external front, it viewed the US and China will reach a deal soon and the effects of trade war gradually contained by most economies including Malaysia.

"Business confidence among manufacturers is on improving trend, expecting better performance for the next six months. As for commodity-based sectors, we expect better performance in 1H of 19 amid gradual pick-up in global commodity prices," it added.

MIDF Research said services and domestic sectors will continue to support the country`s economic growth. However, it said the escalating trade war would pose threat to manufacturing sector.

"Moving forward, we view the ongoing trade tension will drag down domestic business activity as well as other trading countries gradually in 2019.

"Risks to the global economy remain despite recent trade truce between the US and China as it does little to deal with the core sticking points of the duo`s economic rivalry."

On export products, it noted that manufactured goods remain as the main contributor for the economy, followed by mining and agriculture goods.

"Higher expected demand from our major trading partners in both developed and emerging economies mainly Asean economies tilted toward positive outlook for the sector."

However, it said risks to the forecast are still prevalent with anticipation of the shifts in the stance of monetary policy in developed countries could provoke large changes in prices and exchange rates.

Malaysia`s trade surplus widened to RM11.5 billion in January this year, compared to RM10.7 billion in December 2018, as exports growth outperformed those of imports.

"Exports expanded by 3.1 per cent YoY in January 2019 higher than one per cent YoY growth in December 2018 recorded in imports."

Exports expansion was mainly contributed by a double-digit growth of mining goods at 23.5 per cent YoY, besides continuous growth of manufactured goods at 2.9 per cent Yoy.

Domestic exports grew further by 3.9 per cent YoY, indicating a good start for this year as it only recorded a meagre growth of 0.8 per cent 2018.

"With the expected recovery in mining and agriculture goods, we expect domestic exports to continue its upward trend moving forward."

https://www.nst.com.my/business/2019/03/471112/malaysias-economy-likely-grow-49-pct-year-midf-research

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