Despite falling commodity prices and a slowdown in global economic growth, many analysts remain optimistic about the Malaysian economy in 2015.
Affin Hwang Capital Research, an investment banking group based in Kuala Lumpur, expects the Malaysian economy to grow by 5.8% in 2015 – on the higher end of the government’s official target of 5%-6%. The firm says that growth will be weak during the first half, but improve during the second part of the year.
“Going into 2015, the slowdown envisaged in the first half of 2015 is on account of a higher base effect in the first half of 2014, but we believe the pace of economic momentum will improve in the second half.”
Kenanga Investment Bank Bhd., another research group, predicts that Malaysia’s GDP will rise 5.1% in 2015, from an expected 5.8% in 2014, due to the effects of a new goods and services tax (GST) that is set to be implemented during the middle of the year.
“Malaysia’s domestic economy is expected to experience a relatively sharp spike in consumption in the 1Q15 as businesses and consumers prepare for the implementation of the GST.“ said an analyst from Kenanga.
“The following quarters, however, will see limited spending as the economy acclimatizes itself to the new tax system.”
Problems Still Remain for Malaysian Economy
While Affin Hwang is more bullish on Malaysia, it does see global economic problems that could impact the Southeast Asian country. The most important to watch, according to the firm, are issues within the European Union and China, falling crude oil prices, and a devaluation of the Malaysian Ringgit.
Malaysia is one of ASEAN’s largest exporters of oil, and a lower price will mean less export revenue. Brent Crude Oil obtained highs of over US$100 per barrel as recently as this August, but is now US$60.11.
The Malaysian Ringgit fell over 10% against the U.S. Dollar in 2014. In 2015, Affin Hwang expects the Malaysian Ringgit to trade between 3.35-3.40 to the dollar from the current rate of 3.50.
“However, we see some downside risk to Ringgit, if the fiscal deficit turns out to be worse than our current expectation.”
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