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Accommodative stance needs a further boost, lower OPR?

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Let’s look at a few predictions first. Recently, World Bank cut its earlier projected 2.9% global economic growth forecast in to 2.4%. The 2.9% forecast was just few months ago in January 2016. In April 2016, International Monetary Fund (IMF) revised its global economic growth outlook for 2016 downwards, from earlier forecasted 3.4% down to 3.2%. The Organisation for Economic Cooperation and Development (OECD) had earlier predicted a growth forecast for the combined 34 OECD countries at 2.2%. It has revised this downwards to just 1.8%. Suddenly, we have another world concern, BREXIT. Okay, the outlook is gloomy, what can Malaysia do?

Let’s look at what some experts are saying. RHB Research’s chief economist Lim Chee Sing told The Edge Financial Daily said that policy makers and economists are hopeful fora better H2 2016 but this is not assured. Besides that, weaker global growth will point to a weak export outlook for Malaysia. Due to this weaker export it will culminate in dampening domestic demand and economic growth over time. While the government is predicting a growth of between 4 to 4.5%, RHB Research is expecting a 3.9% for 2016. What about the positives? Lim said the economy is however supported by the sizeable infrastructure-related projects under the Economic Transformation Programme such as the mass rapid transit lines, light rail transit Line 3, the Pan Borneo Highway, and the Pengerang Integrated Petroleum Complex in Johor.

HSBC Global Research expects a 4% GDP growth for Malaysia in 2016. This is in line with what the government is expecting. However, it has lowered its own forecast for 2017 from 4.3% GDP growth down to 3.8% instead. It expects Bank Negara (BNM) to cut OPR to 3% during its Sept 7 monetary policy meeting. Two negatives are BNM’s foreign exchange reserves which are said to be “thin” as well as a high level of household debt. Politically, it expects little change in the near-term. Positives include a robust consumer spending thus far, from Q4 2015 to Q1 2016. It may not be sustainable because of weak consumer sentiment. Another positive would be all the infrastructure projects under the Economic Transformation Programme with participation from the private sector.

I think it’s clear that perhaps relying on exporting more in order to grow may be tough. It’s time to stimulate the economy domestically, at least for a while till the world gets back on its feet and starts running. MRTs and LRTs MUST be on track because all these are enablers and catalysts for business growth. A little adjustment to the OPR is definitely positive and it should be done quickly because this window will not be around forever. Just last year the talk was on increasing the rates to “defend” the Ringgit from its fall. Fortunately, our former BNM governor Zeti did not do it because it was never about the Ringgit from the beginning. It was about expectations of the largest economy in the world, that’s all. Happy believing and if not, happy taking actions.

written on 9 July 2016

Next suggested article:   World Bank: 2017 will be a recovery year for Malaysia


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