MARC foresees a moderation in Malaysia’s GDP growth in the 2H2008 as the domestic economy adjusts to the decelerating global economic activity and the recent larger-than-expected fuel hike. Growth trajectory in the 2H2008 will largely hinge on the speed and magnitude of this adjustment.
Inflation is expected to be a major concern as the impact of higher food and transport costs filters through the economy in the near term. In light of rising food prices and higher transport costs following last June’s fuel hike, MARC expects Malaysia’s CPI growth to average 5% in 2008, up from our March’s estimate of 2.8%.
The upward trend in inflation in the next six months will, to some extent, dampen consumer spending which is currently a major pillar of the domestic economy and accounts for 51.1% of GDP.
At the same time, business credit growth is expected to recede as businesses defer significant capex spending. Banks are certain to tighten lending standards as a protective measure following recent rapid growth in personal loans.
An expected range-bound Ringgit will, to some extent, alleviate pressure on exporters at a time when the external sector is facing major headwinds. On the other hand, such consolidation may temporarily reduce foreign investors’ appetite for Ringgit-denominated assets. The Ringgit's long-term fundamentals remain intact notwithstanding current political and economic vagaries.
Against this backdrop, MARC is lowering its forecast headline GDP growth to an average of 5.2% for the whole of 2008, from our initial forecast of 5.9%.
Concurrently, MARC has also revised its estimate of new corporate bond issuances for 2008 down to MYR 40 - 45 billion for 2008 from MYR 45 - 50 billion previously as rising bond yield environment is likely to persist in the second half of the year while moderating economic growth will result in lower financing needs.
MARC has rated new bond programmes with a combined value of RM12.955 billion in the first half of 2008. The breakdown by sectors is as follows:-