KUALA LUMPUR, Nov 20 — Malaysia’s economic fundamentals remain quite robust heading into 2023, despite the uncertainties on the political front following the just-concluded 15th General Election (GE15), said RHB Investment Bank (RHB IB).
In a note, the investment bank said it is maintaining its 2022 gross domestic product (GDP) growth forecast for Malaysia at 7.0 per cent year-on-year (y-o-y), with the balance of risks tilted towards a print of 7.5 to 8.5 per cent, followed by 4.5 per cent in 2023.
According to the official results, GE15 ended with a ‘hung parliament’ where no coalition has a simple majority of seats in parliament.
Pakatan Harapan emerged as the biggest coalition with 82 parliamentary seats, followed by Perikatan Nasional (73) and Barisan Nasional (30).
As such, RHB IB said economic agents and financial market participants are likely to adopt a ‘wait-and-see’ attitude in the near term until a new government is formed.
In the meantime, it expects the ringgit to trade in the range of 4.60-4.70 against the US dollar in the fourth quarter of 2022 (Q4 2022), followed by 4.70-4.80 in the first half of 2023 (1H2023).
“The recent significant decline in USD/MYR was mainly driven by exporters selling US dollar and also thin liquidity in the foreign exchange market,” it said.
RHB IB is also maintaining its 1H2023 average Malaysian Government Securities 10-year (MGS10YR) yield forecast of 4.0-4.30.
“In the local currency bond market, in the last one to two weeks, we did not notice much foreign flows from real money accounts or hedge funds which catalysed the decline in MGS10YR yields since the United States’ (US) October core consumer price index (CPI) print on Nov 10 which came in below expectations.
“In our view, the decline in MGS10YR yields could have been mainly due to the decline in US Treasury 10-year yields rather than factors specific to Malaysia,” it said.
Meanwhile, RHB IB said the outcome of the polls has created uncertainties over Budget 2023 announced on Oct 7, which has been deemed void following the dissolution of parliament on Oct 10.
It said the timeline for the re-tabling of the national budget — which ideally should be presented by December 2022 — is uncertain following the possible changes in the ruling coalition, noting that it would very much depend on the timing of the formation of the new Cabinet.
“Based on the latest developments, the balance of the risks is tilted towards a delay in Budget 2023 re-tabling following the election of a new government,” it said.
For now, the main developments to watch for are the submission of the list of candidates for the Prime Minister’s post to the King, meetings between the parties’ leaders and the formation of a new cabinet.
“Regardless of the outcome, we view that ‘people-oriented’ measures and gradual fiscal consolidation would remain top priorities for the new government, where cash transfers and other types of assistance to lower- and middle-income households are likely to be continued,” it said.
