OCBC: M’sian economy to grow 4.7%

KUALA LUMPUR: OCBC Bank has forecast Malaysia’s economic growth at 4.7% this year, with crude oil prices expected to rebound to US$50 a barrel by year-end.
Its Singapore-based chief economist and head of treasury research and strategy Selena Ling said if crude oil prices stabilise and rebound modestly, it will be good for oil exporting countries, including Malaysia.
“Oil majors have had a few consecutive years of capex (capital expenditure) cuts and the amount of capex cuts over the last three years should start to have an impact on supply,” she told a press conference after presenting 2016’s economic outlook on Friday.
On capex cuts announced by Petroliam Nasional Bhd, Ling opined that it is a projection of a continued low oil price environment.
Going forward, whether the oil exporting countries can restructure and rebalance their economies to be less dependent on oil, it’s a question of time and some difficult policies,” Ling explained.
She said most of the oil producers are hurting badly from the current low oil price and that the situation cannot persist.
“Looking at how reticent the Bank Negara Malaysia statement was, it (gross domestic product) is going to stay in the 4-5% range. We don’t see a catalyst for rebound above 5%.
“If anything, given the state of the commodity market and China, there is a possibility that we could see it slipping a little bit further to the lower 4% range. That boils down to how much support we can see in terms of fiscal and monetary side, which are expected to be constrained.
On the upcoming Budget 2016 revision to defend Malaysia’s deficit target, Ling said a fair bit of goodies were given out during the previous Budget and it is going to be a hard call on where to cut.
“We think it’s going to be a balance between having a slightly higher deficit to GDP at 3.4%-3.5%, but that would also mean that they would be some expenditure cuts.
“Malaysia is fortunate that it still has a current account surplus but the surplus has also narrowed because of the oil and gas industry not doing so well, so the silver lining is there has been a little buffer from the electronics exports but there is pressure on fiscal deficit as well.”
Ling highlighted the 3Cs that will weigh on market sentiment in 2016 – China, commodities/crude oil and currency.
“Going forward, we expect China and the unpredictability of China’s policies to continue to have a lingering effect across Asia. We see commodity prices as the main victim of the China story.”
On crude oil, she said there will be a lot of price correction and rebalancing in the demand-supply story for oil this year.
“We’re hopeful that there could be some stabilisation by the end of the year, because at the current US$26-US$28 a barrel, very few oil producers can survive at those levels. It will be crunch time.”
On currency, Ling said that as market sentiment towards China economy and growth is so bearish now, it means that the pressure is on the downside.
“We see dollar-yuan going higher and it will drag the rest of dollar-Asia currencies along,” she said, adding that OCBC has forecast the ringgit to weaken to RM4.59 against the US dollar by December.
As for monetary policy, OCBC expects Bank Negara to leave its policy rate unchanged at 3.25% for the rest of the year.