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Economy seen to recover in H2 after slow first quarter

PETALING JAYA: The Malaysian economy will bounce back in the second half after registering what is expected to be the slowest quarterly expansion since the second quarter of 2016 during the first three months of the year.

AmBank Research said the economy, moving forward, is also set to benefit from the commencement of 121 construction projects now valued at RM13.93bil by the Pakatan Harapan government, after having cut cost by RM805.99mil.

This excludes mega projects like the light rail transit 3 (LRT3) which now costs RM16.63bil and the mass rapid transit 2 (MRT2) at RM30.53bil, compared to their original price tags of RM31.65bil and RM39.35bil, respectively.

Cost savings from these two projects amounted to RM23.84bil.

Also, it said, the revival of the renegotiated East Coast Rail Link (ECRL) project, which now costs RM44bil from RM65.5bil previously, along with the Penang LRT and the Pan Island Link 1 projects would provide impetus to growth.

The research house, in its Main Themes of 2Q2019 Economic Outlook report, noted that Brent crude oil had posted its best quarterly performance in a decade.

Although its base case oil projection for Brent is US$62–US$65 per barrel on average, the research house said it could touch its best case, which is US$65–US$68 per barrel on average, for 2019 if current trends persist.

“Furthermore, with the government’s commitment to consolidating its fiscal consolidation, it implies that private expenditure will continue to spearhead growth.

“While the public sector undergoes rationalisation and exports moderate despite supportive measures from China gaining traction and somewhat cushioning our softening exports, the policy measures will continue to support private spending,” it said.

It expects 2019 gross domestic product to grow around 4.5%, with the first half of the year likely to average at 4.2% and second half at 4.8%. The research house forecasts inflation at 1% for 2019.

“With slower growth and softer inflation, the monetary policy will remain accomodative. Room for monetary easing biasness remains, especially if business and consumer sentiments remain weak,” it said.

Ambank Research said the ringgit against the US dollar is unlikely to appreciate sharply in comparison to its regional peers, and expects the ringgit to be around 4.10.

It added that exporters should get some relief, as the currency is still being undervalued against the US dollar.

It said Malaysia’s bond yields, meanwhile, would be supported by healthy macro fundamentals like steady growth, healthy reserves, a current account surplus, low inflation and real money flows.

The research house said it expected the gross issuance of Malaysian Government Securities (MGS)/Government Investment Issue in the primary market in 2019 to hover at around RM120bil and RM125bil, while the corporate bond and sukuk market is expected to see a total issuance of RM80bil–RM85bil.


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