RAM: M'sian economy on stronger recovery path this year

PETALING JAYA: RAM Ratings sees Malaysia’s economic recovery to be on a firmer path in 2022 with a 6.8% growth forecast with a downside bias, seeing the resumption of all economic activities and healthy external demand, barring short-term volatilities and the impact of the Russia-Ukraine war it is closely monitoring.

“Although Malaysia’s trade links with the two countries are limited, a protracted war would cause inflationary shocks (from surging commodity prices) and supply chain disruptions, dampen global demand and pose financial market instability risks to growth,” it said in a statement today.

Given still-challenging growth prospects and uncertainties, RAM’s rating actions stayed marginally negative in 2021 with six downgrades and five upgrades, according to its Corporate Default and Rating Transition Study. However, inclusive of rating outlook revisions, it noted that the year turned out positive, with a total of 11 positive actions in contrast to eight negative actions.

“Looking ahead, net rating action could still swing negative as issuers with negative outlooks trump those with positive outlooks 3:1 as at end-2021,” the rating agency said.

It pointed out that there were no issuer defaults recorded during the year. Consequently, all the credit risks of RAM’s rated portfolio remained contained.

RAM laid out that about 80% of rated issuers have AA or higher ratings, indicating strong creditworthiness and a capacity to meet debt obligations on a timely basis.

“Only a very small number of issuers is deemed to be at a high risk of default in the next 12 months (about 2% of total issuers as at end-2021). These high-risk issues are mostly wrapped by credit support from guarantors rated at least AA1, which mitigates the investor’s expected loss should a default occur.”

On the whole, it viewed Malaysia’s 3.1% growth in 2021 as a welcome contrast to the 5.6% contraction registered for 2020, albeit lower than the initially anticipated expansion of 6.5% to 7.5%.

The economy grew 7.1% in H1’21 on the back of robust exports but tumbled in the third quarter following a surge in Covid-19 infections that saw the reimposition of movement controls.

RAM explained that the strong vaccination drive allowed the economy to subsequently reopen and hefty government stimulus and aid measures worth RM530 billion helped cushion the adverse impact of the pandemic, enabling the country to end the year on a positive note.