Malaysian economy to grow 5.1% in 2014

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KL highwayDespite the ongoing Malaysia Airlines flight MH370 tragedy that will likely impact tourism receipts for the country, Malaysia’s economy is expected to expand by 5.1 per cent in 2014 amid improvement in the developed economies that play a vital role for the country due to its exposure to global trade, the Asian Development Bank (ADB) said.

The forecast is well in the range of the central bank’s target of 4.5 to 5.5 per cent and the government’s projection of 5 to 5.5 per cent for the country’s GDP growth in 2014.

“Malaysia has high exposure to global trade, with exports of goods and services equivalent to 83 per cent of GDP.

Thus, projected improvement in the economies of major industrial countries and in world trade bode well for its growth in 2014 and 2015,” said ADB in its Asian Development Outlook 2014.

This year, exports are forecast to rise by 6.3 per cent in US dollar terms, spurred by the ringgit depreciation and stronger demand, in particular from the US and the eurozone as their economies gather momentum. Prospects for growth in exports to China are, however, clouded by softer economic growth there.

This year’s GDP growth at 5.1 per cent is still an improvement from 4.7 per cent growth in 2013 amid a slack in external demand and lower public investment. Further, the rising inflation in the country which is expected to hit 3.2 per cent this year and a fiscal tightening by the government to consolidate its deficits will moderate domestic demand, the ADB said. Reductions in subsidies and the spillover effects on other goods and services has put upward pressure on prices.

Last year’s depreciation of the ringgit has contributed to inflation. In the first two months of this year, inflation rose to 3.4 per cent, the highest since July 2011. In 2015, inflation is seen rising to 3.5 per cent. Among concerns for Malaysia is the high household debt that is expected to rise further in the coming years, though at a slower pace due to measures taken by Bank Negara Malaysia to contain the high debt levels.

Malaysian households are among the most highly indebted in Asia. Household borrowing for houses, automobiles and other home and personal expenditures increased at an average annual rate of 12.1 per cent over 2003-2013 to reach the equivalent of 86.8 per cent of GDP in 2013.

Furthermore, increased borrowing has contributed to sharply higher housing prices.These trends heighten risks to the banking system and the sustainability of household spending.

“Rising debt could test household debt-servicing capacity when interest rates rise or growth in employment and incomes falters. Also, the higher housing prices rise, the greater the scope for them to deflate. Such developments could erode the strength of the banks and hurt their ability to finance the economy,” the ADB said.

ADB also indicated that monetary policy may become less accommodating during 2014, particularly if inflationary expectations build and second-round effects emerge after reductions in subsidies and the implementation of the Goods and Services Tax. It added that rising inflation has turned policy interest rate at a level of 3 per cent since May 2011 as negative in real terms.

The government had to maintain a less stimulatory fiscal policy in 2013 as the government started to address its fiscal deficit, which exceeded 4 per cent of GDP every year from 2008 to 2012. Rating agency Fitch Ratings lowered its credit rating outlook on Malaysia from stable to negative in July 2013, citing its budget deficit, declining current account surplus, and rising household debt.

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Despite the ongoing Malaysia Airlines flight MH370 tragedy that will likely impact tourism receipts for the country, Malaysia’s economy is expected to expand by 5.1 per cent in 2014 amid improvement in the developed economies that play a vital role for the country due to its exposure to global trade, the Asian Development Bank (ADB) said. The forecast is well in the range of the central bank’s target of 4.5 to 5.5 per cent and the government’s projection of 5 to 5.5 per cent for the country’s GDP growth in 2014. “Malaysia has high exposure to global trade, with exports...

Reading Time: 2 minutes

KL highwayDespite the ongoing Malaysia Airlines flight MH370 tragedy that will likely impact tourism receipts for the country, Malaysia’s economy is expected to expand by 5.1 per cent in 2014 amid improvement in the developed economies that play a vital role for the country due to its exposure to global trade, the Asian Development Bank (ADB) said.

The forecast is well in the range of the central bank’s target of 4.5 to 5.5 per cent and the government’s projection of 5 to 5.5 per cent for the country’s GDP growth in 2014.

“Malaysia has high exposure to global trade, with exports of goods and services equivalent to 83 per cent of GDP.

Thus, projected improvement in the economies of major industrial countries and in world trade bode well for its growth in 2014 and 2015,” said ADB in its Asian Development Outlook 2014.

This year, exports are forecast to rise by 6.3 per cent in US dollar terms, spurred by the ringgit depreciation and stronger demand, in particular from the US and the eurozone as their economies gather momentum. Prospects for growth in exports to China are, however, clouded by softer economic growth there.

This year’s GDP growth at 5.1 per cent is still an improvement from 4.7 per cent growth in 2013 amid a slack in external demand and lower public investment. Further, the rising inflation in the country which is expected to hit 3.2 per cent this year and a fiscal tightening by the government to consolidate its deficits will moderate domestic demand, the ADB said. Reductions in subsidies and the spillover effects on other goods and services has put upward pressure on prices.

Last year’s depreciation of the ringgit has contributed to inflation. In the first two months of this year, inflation rose to 3.4 per cent, the highest since July 2011. In 2015, inflation is seen rising to 3.5 per cent. Among concerns for Malaysia is the high household debt that is expected to rise further in the coming years, though at a slower pace due to measures taken by Bank Negara Malaysia to contain the high debt levels.

Malaysian households are among the most highly indebted in Asia. Household borrowing for houses, automobiles and other home and personal expenditures increased at an average annual rate of 12.1 per cent over 2003-2013 to reach the equivalent of 86.8 per cent of GDP in 2013.

Furthermore, increased borrowing has contributed to sharply higher housing prices.These trends heighten risks to the banking system and the sustainability of household spending.

“Rising debt could test household debt-servicing capacity when interest rates rise or growth in employment and incomes falters. Also, the higher housing prices rise, the greater the scope for them to deflate. Such developments could erode the strength of the banks and hurt their ability to finance the economy,” the ADB said.

ADB also indicated that monetary policy may become less accommodating during 2014, particularly if inflationary expectations build and second-round effects emerge after reductions in subsidies and the implementation of the Goods and Services Tax. It added that rising inflation has turned policy interest rate at a level of 3 per cent since May 2011 as negative in real terms.

The government had to maintain a less stimulatory fiscal policy in 2013 as the government started to address its fiscal deficit, which exceeded 4 per cent of GDP every year from 2008 to 2012. Rating agency Fitch Ratings lowered its credit rating outlook on Malaysia from stable to negative in July 2013, citing its budget deficit, declining current account surplus, and rising household debt.

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