RAM Ratings expects domestic demand drivers to lead 4.5% projected growth in 2020

Published on 15 Nov 2019.

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Against the backdrop of a continually challenging external demand landscape, Malaysia’s economic resilience will rely heavily on domestic drivers in 2020. As forward-looking external cyclical indicators remain weak and the world economy still faces the risks of rising trade protectionism as well as uncertain trade policy direction, the current ebbing of global growth momentum shows little sign of being arrested anytime soon. As such, growth will be bolstered to a large extent by resilient consumption and the revival of infrastructure investments. Given these factors and considerations, economic growth is forecast to ease slightly to 4.5% in 2020, from the 4.6% expected this year.

From our analysis of RAM Business Confidence Index (RAM BCI) data, domestic-oriented firms have been recording very stable readings in the last few quarters. Over the last several years, the construction and services sectors (the most domestic-oriented) have been exhibiting high ratios of employee compensation to value-added output, as well as a lower variability in wage growth compared to those in the manufacturing sector. This is conducive to a more predictable stream of income for sustainable consumption. The anticipated resilience of domestic-oriented sectors should contribute positively to the healthy 6.8% growth of private consumption next year, compared to the projected 7.3% for 2019.

Analysis based on the RAM BCI also indicates that uncertain future demand continues to impinge on cyclically driven investment decisions. Thus, the main upside potential from investment activities in the coming year will stem from the infrastructure component with the full resumption of key big-ticket infrastructure projects. Apart from that, widespread nationwide infrastructure repairs and enhancements, including rural infrastructure and utilities, should also create some additional benefits for investment growth. Private investment is forecast to expand 3.6% next year, from the projected 1.2% for 2019.

Given our baseline expectation of lingering weakness in external growth and, therefore, more emphasis on domestic demand-driven expansion, both monetary and fiscal policies will play an integral role as a buffer against downside risks. In light of the mildly growth-supportive Budget 2020, there is also a possibility of Bank Negara Malaysia cutting the Overnight Policy Rate another 25 bps to 2.75% next year. Our expectation of further easing is premised on the potential risk of external downside risks filtering through to the domestic growth drivers of consumption and investment - the backbone of sustainable growth in 2020.  


Analytical contact
Kristina Fong
(603) 3385 2511

Media contact
Padthma Subbiah
(603) 3385 2577


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© Copyright 2019 by RAM Rating Services Berhad

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Economic Outlook 2020 15-Nov-2019 Economic Outlooks View PDF