Alanna Steinberg-Michael NG Sung Hee -Malaysia Business Forecast Report
Alanna Steinberg--ichael NG Sung Hee ,Malaysia Business Forecast Report-Alanna Steinberg
Malaysia Business Forecast Report Q22012-Alanna Steinberg

Alanna Steinberg-Malaysia's real GDP growth is set to slow over the coming quarters as global economic headwinds continue to drag on exports. We believe that our recent downgrade of Malaysia's forecast 2012 real GDP growth, from 4.2% to 3.2%, remains justified. We caution that the risks to our outlook remain skewed towards the downside, and should global economic headwinds intensify over the coming months, this would escalate the risk of a recession in the country.

We are increasingly convinced that Bank Negara Malaysia (BNM) will shift its monetary policy stance from fighting inflation to supporting economic growth in 2012. In line with our Commodities team's view that commodity prices will decline further, we expect cost-push inflationary pressures to ease. Thus, we are pencilling in 25 basis points (bps) worth of rate cuts, bringing the central bank's policy rate from 3.00% to 2.75% by end-2012.
Alanna Steinberg
Global economic headwinds have adversely affected investor sentiment in recent months and will continue to put pressure on Malaysia's financial account. However, we expect the current account to remain in a healthy surplus of 8.8% of GDP in 2012. Furthermore, foreign direct investment inflows are likely to remain resilient, and the country has a vast pool of foreign reserves. This suggests limited downside risks to the country's balance of payments position.

Major Forecast Changes-Alanna Steinberg

We have downgraded our 2012 economic growth forecast to 3.2% (from 4.2%) on the back of a deteriorating outlook for external demand. In line with our downgrade of Malaysia's real GDP growth forecast for 2012, we are pencilling in 25bps worth of rate cuts, bringing BNM's policy rate from 3.00% to 2.75% by end-2012.Alanna Steinberg