Fitch raises Malaysia 2019 GDP growth forecast to 4.6% on solid first half

KUALA LUMPUR (Reuters): Fitch Ratings on Monday revised its 2019 growth forecast for Malaysia to 4.6%, from 4.2%, after the country reported stronger-than-expected growth in the first half.

Malaysia’s central bank reported second-quarter economic growth of 4.9% on Friday, making Southeast Asia’s third-largest economy the only one in the region to show some acceleration from the first quarter.

“The revision reflects the stronger-than-expected average growth rate of 4.7% y-o-y in H119, as well as our view for private consumption to remain strong and for the deceleration in investment growth to bottom out,” Fitch said in a statement.

Fitch said private consumption will remain the main engine of growth, aided by government policies to boost disposable income and purchasing power.

The July restart of the Chinese-led multi-billion dollar East Coast Rail Link (ECRL) also boosted sentiment for improved investment climate in Malaysia, especially with Malaysia’s efforts to double Chinese foreign investment in the manufacturing sector, the firm said.

However, exports, which grew marginally in the first half on the back of a contraction in imports, are likely to be a drag on economic performance in the second half of the year, as will subdued public spending.

“The external sector is likely to remain under intense pressure over the coming quarters, with any meaningful recovery to exports growth being unlikely, since any benefits from relocation to Malaysia will likely take time to feed through,” Fitch said.

Bank Negara Malaysia on Friday maintained its 2019 full-year forecast at 4.3-4.9%, but said an escalation in global trade tensions could knock 0.1 percentage points off GDP growth.

Fitch affirmed Malaysia’s A- rating in July with a stable outlook.