Domestic demand to drive GDP; interest rate likely to remain unchanged

KUALA LUMPUR: Domestic private consumption is anticipated to chart
healthy growth due to favourable labour-market conditions, aided by a
slew of government initiatives and handouts, RAM Holdings Bhd said.
“The
Malaysian economy expanded at a faster-than-anticipated pace of 5.1% in
the first half of this year, thanks to its robust domestic demand
growth despite significant external headwinds,” the credit rating
agency said in a press release yesterday.
RAM said that private investment was expected to expand further driven by the Economic Transformation Programme and accommodative interest rates.
However
it warned that if global economic conditions continued to deteriorate,
heightened risk aversion could depress domestic demand in the future.

[You must be registered and logged in to see this image.] Bank Negara is likely to maintain its benchmark interest rate due to heightened growth risks from external weaknesses, RAM says. “Public
expenditure, meanwhile, should remain significant due to increased
emoluments and supplementary spending this year. Nonetheless,
Malaysia's export performance is not envisaged to improve, with no end
in sight to the troubles plaguing its key trading partners. In
contrast, import growth will likely be sustained by the strong domestic
economy,” RAM said.
RAM said that global conditions remained
weak as the European debt crisis and the uncertainties surrounding the
fiscal situation in the United States limited the growth prospects of
these economies.
“In the near term, stable domestic economic and
financial conditions, together with significant fiscal support, are
expected to enable the Malaysian economy to grow at its potential
output. Consequently, we have revised the country's GDP (gross domestic
product) growth forecast from 4.6% to 4.9% for this year,” it said.
It
also noted that the underlying favourable demand conditions and
expectations of a change in fiscal policies may exert some longer-term
upward price pressures on the economy.
“In such a scenario, Bank Negara
is likely to maintain its benchmark interest rate due to heightened
growth risks from external weaknesses. Although global risk aversion
will render the ringgit more volatile in the short term, the currency
will eventually normalise because of its strong fundamentals,” it added.