Malaysian Economy Growth on the Up

By Rupa Damodaran | Source: The Business Times
The Malaysian economy is expected to grow by 5.3 per cent this year before rising to 5.5 per cent in 2014 on improved global economic environment, Asian Development Bank (ADB) said.

Electronics and other manufactured exports from Malaysia will see improved prospects with the recovery in industrial economies in 2014, ADB added.

In its Asian Development Outlook 2013 released from Manila yesterday, the bank said although import growth will likely moderate in 2013, it will still outpace growth in exports, given strong domestic demand.

“The drag on GDP growth exerted by net exports will lessen this year.”

A better outlook this year for China and India, two important export markets, will benefit Malaysia’s commodity exports though prices of commodities such as palm oil and liquefied natural gas will remain under downward pressure.

Production of natural gas and oil will increase this year as investment to develop new fields and enhance recovery at existing oil fields pays dividends.

Agriculture is forecast to recover this year, but growth in construction will subside from last year’s high rate, it added.

ADB chief economist Changyong Rhee in a webcast, said Asean economies showed resilience and will post growth in the mid-five per cent and the strong performance is expected to continue in anticipation of the Asean Economic Community 2015.

ADB expects fiscal policy to start to tighten later this year as the government has targeted a narrower fiscal deficit equivalent to four per cent of GDP in 2013.

Bank Negara Malaysia is expected to keep interest rates at levels supportive to economic growth into 2013, while standing ready to raise rates if price pressures gather steam.

Robust domestic demand and an anticipated gradual reduction of subsidies during the forecast period will nudge prices up, with moderating factors anticipated to be soft global food and fuel prices and a firm ringgit.

The bank has projected inflation to grow by 2.2 per cent in 2013 and three per cent in 2014.

Strong expansion in private consumption and fixed investment lifted GDP growth to 5.6 per cent in 2012, close to the average growth rate in the five years before the global financial crisis.

Private consumption, which increased by 7.7 per cent and made a major contribution to GDP growth, was driven by a robust labour market, growth in credit and several government decisions during the year.

Employment grew by 3.6 per cent, mostly in domestic-oriented sectors such as services and the unemployment rate declined to three per cent.

While average wages in the private sector rose by a robust five per cent, the government’s contribution to private consumption came from a 13 per cent increase in public sector wages in March 2012, higher public sector pensions and a range of cash transfers to low- and middle-income households.

Fixed investment surged by 19.9 per cent, its best performance in 12 years with much of the investment was related to the government’s Economic Transformation Programme, which aims to lift Malaysia into the ranks of high-income nations by 2020 by upgrading industry and infrastructure.

Private sector investment was particularly strong, climbing by 22 per cent, while public sector investment rose by 17.1 per cent.

The ratio of fixed capital investment to GDP was at 25.6 per cent in 2012, the highest in 14 years, though still well below the 40 per cent pace of the mid-1990s.

On policy challenges in Malaysia, ADB listed the situation of fewer women participation in the workforce.

The increased participation can boost the economic growth as it helps to overcome skills shortages, enlarge the pool of entrepreneurs and improve the welfare of women.