Bank Negara Malaysia Report Malaysian economy to grow 4.5% - 5.5% in 2014

by **Cals** Wed 19 Mar 2014, 22:15

Bank Negara Malaysia Report Malaysian economy to grow 4.5% - 5.5% in 2014

Business & Markets 2014

Written by Chong Jin Hun of theedgemalaysia.com

Wednesday, 19 March 2014 18:01

KUALA LUMPUR (Mar 19): The Malaysian economy is seen growing between 4.5% and 5.5% in 2014 on slower domestic demand expansion but improving external trade, according to Bank Negara Malaysia (BNM).

BNM said in its latest annual report that the forecast was an improvement from the 4.7% economic expansion seen in 2013.

During the year, domestic demand was expected to rise 6.9% compared with the 7.6% expansion a year earlier. BNM said the slower growth in 2014 reflected the ongoing public sector consolidation.

Nonetheless, domestic demand would remain the key driver of growth, albeit at a more moderate pace, the central bank said.

In line with the improvement in external demand, Malaysia’s export performance across most product categories is expected to pick up in 2014.

The private sector is seen as a major driver of domestic demand in which private investment and consumption were seen supporting domestic demand, rising 12.6% and 6.9% respectively.

On the other hand, public investment and consumption were anticipated to grow 2.9% and 3% respectively.

"On the supply side, all economic sectors are expected to register positive growth in 2014.

"Key drivers to overall growth will be the services and manufacturing sectors, which will benefit from the improvement in the global economic environment ...," BNM said.

External trade is expected to improve with Malaysia's gross exports seen growing 5.8% as demand improved in advanced economies, and as regional countries sustained their growth.

BNM said electronic and electrical (E&E) exports would gain from higher demand from advanced countries. Meanwhile, demand for non E&E items was seen coming from regional economies.

External trade improvement is expected to result in a smaller contraction of 10.3% in net goods and services exports. This compares with the 22.9% decline a year earlier.

"Overall, with the gradual recovery in exports, net exports of goods and services will exert a lower negative contribution to real growth in 2014.

"Nevertheless, with import growth remaining robust, and exports registering a modest recovery, the current account surplus of the balance of payments in 2014 is projected to narrow to RM30.8 billion or 3% of GNI (gross national income)," BNM said.

BNM also sees Malaysia's headline inflation averaging between 3% and 4% in 2014 versus 2.1% seen in 2013, mainly due to domestic cost factors.

"These include the recent price adjustments arising from subsidy rationalisation and the spillover effects of these adjustments on the prices of other goods and services.

"The higher cost pressures, however, will be partly contained by subdued external price pressures, given the expectations of lower global food and energy prices.

Continued expansion in domestic capacity and a moderation in domestic demand would also contribute towards attenuating the cost pressures," BNM said.

On the external front, BNM is mindful of risks which may curb world economic expansion. It said the downside risks could affect Malaysia's economic performance this year.

"In the advanced economies, excess capacity in the labour and product markets remains, while fiscal uncertainties may affect the pace of recovery.

"Emerging economies may also experience slower-than-expected domestic demand amid policy measures to address domestic risks arising from high growth in credit and asset prices.

BNM also warned that global financial market volatility could lead to a reemergence of large and volatile capital flows.