Moody's downgrades Malaysia's sovereign rating

Malaysia, a gas and commodities exporter, has been hit by falling oil prices and a slowdown in China.
Malaysia, a gas and commodities exporter, has been hit by falling oil prices and a slowdown in China. PHOTO: REUTERS

KUALA LUMPUR • Moody's yesterday cut Malaysia's sovereign rating outlook to stable from positive, due to the negative impact of changes in the external environment on the growth of the nation's economy.

The ratings agency said the change in outlook reflects a deterioration in Malaysia's growth and external credit metrics due to external pressures over the past year.

The downgrade comes on the same day the government released data for factory output in November, which slowed to its weakest pace in 16 months, hurt by weaker global demand and a decline in mining production.

Government data showed factory output last November grew 1.8 per cent from a year ago, its slowest since July 2014 and well below the median forecast of 4 per cent from a Reuters poll of economists.

South-east Asia's third-largest economy, a gas and commodities exporter, has been hit by falling oil prices and a slowdown in China.

The ringgit was Asia's worst performing currency last year, slumping more than 18 per cent against the US dollar. It fell to 4.4 per US dollar from 4.395 before the output data.

TWIN BLOWS

The mining sector is facing headwinds from lower energy prices, while the implementation of a Goods and Services Tax in April has affected production since the third quarter of last year.

MR JEFF NG, an economist at Standard Chartered, on the Malaysian economy.

Economists said weaker growth in output stemmed mainly from poor external demand, which also led to unexpectedly weak growth in exports in November, and a contraction in the mining sector for the second consecutive month.

"The mining sector is facing headwinds from lower energy prices, while the implementation of a Goods and Services Tax in April has affected production since the third quarter of last year," said Mr Jeff Ng, an economist at Standard Chartered in Singapore. "What we're seeing is weakened external demand while domestic demand has remained subdued."

November exports rose 6.3 per cent from a year earlier, due to lower liquefied natural gas exports and a marginal rise in demand for electrical and electronic products.

A private manufacturing purchasing managers' index showed factory activity contracted for the ninth straight month in November. The index averaged just 47.7 in the last quarter of 2015, the joint-weakest in the survey's history.

Moody's, which affirmed Malaysia's issuer and senior unsecured bond ratings at A3, said the changes in the external environment have reduced government revenues over the period: "Those environmental changes have also undermined Malaysia's external position, with large capital outflows, a falling current account surplus, sharp exchange rate depreciation and falling reserves."

Alongside a worsening external environment, material domestic imbalances continue to pose a risk to growth, and household debt levels remain high, it added.

Despite progress in relation to fiscal consolidation, Moody's expects Malaysia's public debt burden and debt affordability will see only limited improvement.

The move brings Moody's outlook in line with that of Standard & Poor's and Fitch Ratings, with all three companies ranking Malaysia at their fourth-lowest investment grades.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on January 12, 2016, with the headline 'Moody's downgrades Malaysia's sovereign rating'. Print Edition | Subscribe