KUALA LUMPUR (Bernama) – As Malaysia braces for flagging world’s economy, there could be a silver lining in its economic outlook this year, despite a dismal forecast that skewed towards strong growth in the electrical and electronics (E&E), and tourism industries.
This is in view of falling crude oil and commodity prices, particularly that of crude palm oil, will affect the government’s revenue and ability to meet its targets in reducing the budget deficit to three per cent this year.
Brent Crude oil prices dipped below $50 per barrel yesterday, the lowest since May 2009 due to a supply glut.
Economists are revising downwards Malaysia’s economic growth this year from the official government target of five to six per cent on the back of the weakening ringgit, a five-and-a-half year low, against the US dollar.
However, Malaysia’s exports for the first 11 months of 2014, remained strong as it expanded by 6.8 per cent to RM698.44 billion with robust E&E exports to the US.
Encouraging exports to the US were supported by its strong gross domestic product (GDP) growth of five per cent in third quarter of 2014.
Amid prevailing weaknesses in the European economy, the US economy is said to be regaining strength with improved labour market and trade data.
More imports from the US in E&E products are expected with stronger consumer demand.
Maybank Investment Bank Research said the weak ringgit had boosted export earnings.
It said the fall in crude oil prices and vulnerability to capital outflows, especially in view of the high foreign holdings of the Malaysian government securities combined with the anticipated narrowing of interest rate differential with the US, have weighed down on sentiment on the ringgit.
“Nonetheless, the softer ringgit should help boost exports through translation gains in export earnings – with a short-time lag – to offset higher import costs,” the Maybank IB Research said.
A focus on industries that generate revenue and growth could help Malaysia’s build up its finances to balance its budget and achieve its fiscal consolidation exercise.
This is in view of concerns of public finances that narrower current account surplus could tip into deficit.
Maybank IB Research said there were fears that Malaysia’s trade surplus (and by extension, current account surplus) is on the verge of tipping into deficit as Brent crude oil prices dropped 40 per cent at the end of Nov 2014 from the peak in July 2014.
“We reiterate our view of a likely scenario of narrower trade surplus and current account surplus,” Maybank IB Research said.
The weak ringgit is a boon to tourism which Malaysia should take advantage of.
The Kuala Lumpur International Airport registered passenger arrivals of over 40 million as at October last year, a 4.2 per cent growth from the previous year, making it the fastest growing major airport in Asia Pacific.