Source: The Edge
Malaysia’s exports are expected to grow by between 3% and 4% this year, boosted by the recovery in commodity prices and higher electronics exports, says OCBC Bank economist Wellian Wiranto.
“We have seen an uptick in export numbers that are helped by the commodity rebound as well as a pickup in electrical and electronics exports,” said Wiranto.
Presenting OCBC Bank’s 2017 economic outlook yesterday, he said Brent crude oil would stabilise at US$65 (RM288) per barrel, supported by production cuts from Opec, which is likely to provide additional stability to Asian markets.
Brent futures were last traded at US$55.72 per barrel, according to Reuters.
Wiranto allayed concerns that an increase in American shale oil production and the US dollar would disrupt oil prices as Opec cuts should strongly support the oil price.
“We’re dealing with many small producers experiencing different cost bases (in US shale oil), so supply coming in is a risk, but [they are] coming in from a low base,” he said.
“Our baseline is that [US President Donald] Trump will be able to push through some of his policies and that the Fed (US Federal Reserve) would be able to hike the rates twice this year in line with market expectations. So even if you have US dollar strength, it’s not strengthening by a lot more than what the market has priced in.
“However, the degree of support coming from the oil price appears to be less than anticipated,” he said, especially as the Malaysian government has been decoupling its fiscal budget from a dependence on oil.
“We should take heart that there are enough pockets of strength in the fundamentals of domestic economies in the region — including that of Malaysia — for us to be hopeful of a peaceful year ahead,” he said, reiterating a 4.2% growth forecast for the Malaysian economy.
Malaysia’s exports to the US is some 5.8% of gross domestic products (GDP), according to data from OCBC and the United Nations Conference on Trade and Development (UNCTAD).
In comparison, Vietnam and Hong Kong stand to lose out the most as their exports account for 15.4% and 15.2% of their respective GDP.
“China is still the big guy,” Wiranto said, noting that there were larger indirect risks from a trade war between the US and China than direct impact from US policies on Malaysia.
Wiranto said Trump may distract attention away from a US economic shortfall by increasing geopolitical threats, with China being a prime target as its trade with the US accounts for 49.2% of the country’s trade deficit.
“Early signs suggest that Trump may be more of a man of his word than global markets realise,” Wiranto opined, noting that the president has fulfilled campaign promises on immigration policies.
Meanwhile, the direction of trade policies seems to have taken a protectionist turn while Trump has yet to take action on domestic economic reforms, he noted.
“It’s going to be very tough for the US economy to go well enough so that Trump can claim credit and leave the rest of the world alone, but not so good that [the] US dollar rallies and the Fed [has to] hike rates like crazy,” he opined.
On the overnight policy rate, Wiranto said Bank Negara Malaysia (BNM) is likely to maintain it at 3% for the remainder of the year as it aims to stabilise the ringgit.
“The chances of a rate cut by the central bank is quite minimal [as] the cost of cutting the rate would run the risk of currency volatility,” he added.
Additionally, high household debt levels and domestic inflation are mitigating factors to the rate hike, while an upturn in exports would allow the central bank to “breathe more easily”.
Wiranto also opined that BNM may want to continue shoring up foreign exchange reserves after supporting the ringgit late last year.
Yesterday, BNM reported a 0.7% increase in international reserves to US$95 billion as at Jan 31 from US$94.3 billion as at Jan 13.