According to a Xinhua report, most analysts do not see a political risk for the country, as they expect the ruling Barisan Nasional to remain in power, mainly due to a split in the opposition.
Analysts also expect higher consumer and government spending in the election year. Xinhua quoted a Maybank Investment Bank Research report as saying there would be “room for increase in targeted spending” due to GE14.
RHB Research Institute Sdn Bhd expects the gross domestic product (GDP) to grow at a more moderate but healthy pace of 5.2% this year, due largely to slower exports. It expects domestic demand to hold up in 2018, saying: “We envisage domestic demand to continue to grow at a robust pace of 6% in 2018, albeit slower than the +6.5% estimated for 2017, and this is still favourable compared with 2016’s +4.3%.”
In his new year message, Prime Minister Najib Razak said the economy was expected to register healthy growth in 2018, adding: “Our economy beat all expectations, with the World Bank revising its estimate for our growth this year (2017) upwards not once, not twice, but three times – to a very healthy 5.8%.”
Maybank Research also expects GE14 to lend further support for the ringgit. Noting that the ringgit tended to strengthen in the lead-up to elections due to rising confidence, Maybank said the sustained current account surplus and rising foreign exchange, and improving oil prices might also lend support to the currency.
Xinhua said the rebound in oil prices would provide fiscal room for the Malaysian government to increase its spending this year as Malaysia was a net exporter of oil and gas.
It quoted Alliance DBS Research as saying: “With the 14th general election due to be called before August 2018, Budget 2018 has lived up to expectations with a number of wide-ranging initiatives to put more money in the hands of consumers, especially lower-income households.”
These initiatives, including personal income tax cuts, various cash handouts and increase in civil servants’ overall emoluments, are expected to support the nascent recovery in consumer sentiment and consumption.
“Together with recent economic growth momentum, we believe these initiatives will provide the impetus for the much-needed recovery in consumer sentiment,” Alliance added.
According to Xinhua, China’s Belt and Road Initiative (B&R) would also favourably impact both the world and Malaysian economies.
“We believe that in 2018, various infrastructure projects across the world will be financed under the B&R Initiative. This may lead to higher demand for commodities and sustained global economic growth,” Xinhua quoted Affin Hwang Capital.
The research house estimates that a sizable portion of the infrastructure projects, worth about RM180 billion, will be funded by Malaysian government special-purpose vehicles and foreign government soft loans with China playing a significant role.
Proposed in 2013, the Silk Road Economic Belt and the 21st Century Maritime Silk Road Initiative aim to build trade and infrastructure networks connecting Asia with Europe and Africa on and beyond the ancient Silk Road routes. Malaysia is one of the first countries that supported the initiative.
CIMB Research expects the B&R to play a big role in catalysing mega projects in 2018 for Malaysia.
Xinhua quoted CIMB Research as saying: “With the funding support of the B&R as an enabler, Malaysia, for the first time, has targeted to implement or roll-out four major rail projects simultaneously in 2018.” These projects include the East Coast Rail Link, Kuala Lumpur-Singapore High Speed Rail, Mass Rapid Transit 3 and the Gemas-Johor Baru electrified rail double tracking, all of which are expected to involve Chinese participation.
Xinhua said the ringgit was likely to remain steady in 2018, though volatility remained as the United States Federal Reserve would likely hike rates.
Maybank Research expects the ringgit to strengthen to 3.95 against the US dollar by the end of 2018.