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Malaysia: Short-lived Growth Euphoria?
Q1 GDP growth came in much stronger than expected at 10.1% yoy, driven by higher than expected growth in both the manufacturing (16.9%) and services (8.5%) output. The former contributed 4.9%-point and the latter 4.7%-point.- The strong growth momentum in manufacturing output is likely to be holding up in H1 10 with our forecast of 13.2%. However, with the waning base effects, it may grow at a slower pace of 6.1% in H2 10.
- We forecast services output growth to moderate from 7.9% in H1 10 to 6.6% in H2 10 on the back of monetary tightening and fiscal consolidation.
- Overall, we revised our 2010 GDP forecast higher from 5.8% to 7.0%, mainly following better than expected Q1 10 growth.
- The Overnight Policy Rate (OPR) was hiked by 25bps to 2.50% as widely expected. We continue to see further normalisation towards the 3.00% level in H2 10. The monetary policy statement attributed the decision to broad-based growth drivers and higher inflation outlook in light of economic expansion and ¡§¡Kpossible adjustments in administered prices¡K¡¨.
- Given such prospect of higher OPR, we tip the deposit growth to reach 9.3% for 2010 as compared to 8.0% seen in 2009 but still lower than an average of 12.7% when the OPR level was hovering at 3.50%.
- Indicators of banks¡¦ willingness to lend to both households and businesses have shown steady uptrends recently. We see possibility of overall loans growth to reach 9.8% in 2010, tad higher than 2009¡¦s 8.9%.
- .From Loans-to-Deposit Ratio (LDR) perspective, the stable level of 75% is unlikely to cause excessive inflationary pressures for the domestic economy.
- Amidst regional currencies¡¦ appreciation and BNM policy stance, the ringgit has been an outperformer among the other regional currencies. MYR has gained 7.30% year-to-date (IDR 3.56%, THB 3.18%, PHP 3.02%, and SGD 1.97%) against the greenback.
- We believe that the USD-MYR will consolidate on the back of our expectation of slowing growth momentum in H2 10 and a likely pause in the BNM¡¦s rate hiking cycle in Q3 10 that would taper some of the ringgit¡¦s upward pressure.
- Our revised USD-MYR forecast are as follows:
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