Malaysia's Economic Growth To Ease To 4.5 Pct Next Year - ICAEW

KUALA LUMPUR, Dec 4 (Bernama) -- Malaysia's economic growth is expected to ease to 4.5 per cent next year from 4.8 per cent this year, with domestic demand providing some relief amid a more challenging outlook for exports, said the Institute of Chartered Accountants in England and Wales (ICAEW). Economic Advisor and Oxford Economics Lead Asia Economist Sian Fenner said higher inflation, tightening of policy rates, financial stability considerations arising from higher interest rates in the United States (US) and internal development are also likely to moderate demand. "In line with our simulation of the US-China tariffs, we expect economies with the closest ties to be the hardest hit in a trade war, whether through direct or indirect exports," she added. Fenner said this when presenting the ICAEW Economic Insight: Southeast Asia for the Fourth Quarter of 2018 report here Tuesday. Household spending is likely to moderate to between 5.5 per cent and 6.0 per cent in 2019, she added. "Against a challenging global backdrop, we expect that the knock-on impact of the US-China trade war will be felt more strongly in 2019, resulting in a trimmed growth forecast for Malaysia next year, with the global macroeconomic context still reasonably constructive," she said. On the US-China trade talks, Fenner said the positive development is likely to lead to a temporary truce. “We are not expecting that the US$200 billion imports from China to be imposed with 25 per cent tariffs. We have a 90-day window, but the thing is, trade between the US and China remains quite large. “It is not only about trade but also national security. It is about China wanting to continue with its Made in China 2025 and the US trying to protect its own manufacturing sector,” she added. Meanwhile, Fenner expects Bank Negara Malaysia to raise interest rates by 25 basis points mid-2019. The overnight policy rate is currently at 3.25 per cent. According to ICAEW’s report, Malaysia's fiscal position is expected to improve, with deficit estimated to be at 3.5 per cent of the Gross Domestic Product (GDP) in 2019, slightly higher than the government's target of 3.4 per cent. This is a reflection of a more cautious outlook for GDP growth between 2019 and 2020 and a likely delayed effect of a potential boost to revenues from new taxes announced in the 2019 Budget. Despite higher fiscal projections, the country is expected to maintain its credit rating through efforts to restore public finances by reducing fiscal deficit over the medium term and lower interest rate payments as a share of revenue. -- BERNAMA