KUALA LUMPUR: The greater transparency shown by the government and efforts it has taken to address its total liability are positive factors for Malaysia’s overall sovereign rating assessment, says Malaysian Rating Corporation Bhd (MARC).

It said the government had taken respectable efforts to ensure that Malaysia’s A-/A3 rating would not be threatened by some of the current macro challenges.

“Going forward, we believe the rating would be maintained at the current level,” said the ratings agency in a statement today.

On the fiscal front, MARC pointed to efforts by the government to become more flexible on its stance, such as the plan to boost development expenditures to above RM50 bil for this year.

“Notwithstanding this, the balancing act between supporting growth and ensuring a continuing fiscal consolidation effort is becoming more challenging, especially at a time when global growth is weakening,” it said.

MARC also expects that the country’s real gross domestic product (GDP) to decelerate to 4.3% in 2020, below the government’s forecast of 4.8%, due to weaker external trade performance and softer domestic demand growth.

“Although trade diversion arising from trade tensions between the US and China could marginally benefit Malaysia in the short term, the overall weakening of global trade growth will continue to weigh on Malaysia’s export sector.

“Forward indicators suggest a lacklustre outlook, that is, a continuing downtrend of the export orders index of US manufacturing Purchasing Managers’ Index and a continuing contraction in global semiconductor sales,” it said.

As Malaysia remains largely dependent on its consumer support, MARC does not think that this is sustainable and the latest statistics are already showing increasing cautiousness among consumers, judging from recent consumer surveys.

It said the plus point, however, was that the labour market remained stable and supportive of consumers’ spending behaviour. MARC expects private consumption growth to soften to 6.5% in 2020.

Meanwhile, the ratings agency has projected headline inflation numbers to rise modestly to an average between 1.2% and 1.7% assuming that the abolition of fuel price ceilings takes place in 2020.

Weaker domestic demand, however, would keep inflation below the long-term trend, it added.

On the ringgit, MARC said the local note would be affected by the risk of a slower GDP growth, expectations of lower overnight policy rate due to the slowing economy, ability to achieve the fiscal targets against the backdrop of slower growth, and decisions by FTSE Russell on the possible exclusion of Malaysian government bonds from its global index.

“The upside risk to the ringgit lies in the possibility of a softer US dollar due to the widening current account and budget deficits, as well as the weaker US economy,” said MARC.

It said Bank Negara Malaysia (BNM) had suggested a cautious monetary policy stance as global central banks acknowledged the limits of monetary tools in supporting growth.

“Although there are perceptions that the recent moves by regional central banks to reduce their policy rates could exert pressure on BNM to follow suit, MARC foresees the trend in ringgit to be a crucial factor in determining BNM’s future moves,” it added. – Jan 7, 2020 Bernama

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