Highlight BNM sees Malaysia 2013 GDP growth at 5-6%, fiscal deficit 4%

Highlight BNM sees Malaysia 2013 GDP growth at 5-6%, fiscal deficit 4%
Business & Markets 2013
Written by Chong Jin Hun of theedgemalaysia.com
Wednesday, 20 March 2013 18:01


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KUALA LUMPUR (Mar 20): Bank Negara Malaysia (BNM) expects the country's economic growth to be sustained at between 5 and 6% in 2013, led by private investment growth amid an improving external trade landscape, the central bank said in its latest 2012 annual report.

This compares to the nation's gross domestic product (GDP) expansion of 5.6% in 2012.

BNM's 2013 forecast is slightly higher than the Finance Ministry's growth estimates of between 4.5% and 5.5%.

BNM said "economic activity will be anchored by the continued resilience of domestic demand, and supported by a gradual improvement in the external sector".

In 2013, domestic demand is expected to grow 8.1% compared to 10.6% a year earlier. Domestic demand is expected to be the main driver of economy as private investment is seen growing at 15.6%. This is, however, lower compared with the 22% expansion seen a year earlier.

BNM said the private sector will compensate for the reduction in government expenditure as lawmakers aim to narrow the country's budget deficit to 4.0% of GDP in 2013 from 4.5% in the preceding year.

The deficit reduction is in tandem with policymakers’ fiscal policy which aims to sustain economic growth while ensuring prudent use of government financial resources. International ratings agencies have also warned Malaysia to bring down its budget deficit.

On the supply side, all crucial segments of the economy are expected see expansion in 2013.

According to BNM, the CONSTRUCTION [] sector is expected to grow the most at 15.9% on the implementation of major infrastructure projects.

This is followed by the services and manufacturing segments at 5.5% and 4.9% respectively. Meanwhile, the mining and quarrying fraternity is seen growing at 5% while the agriculture industry’s expansion is estimated at 4%.

"In the commodities sector, the growth of agriculture is expected to improve due to the higher output of crude palm oil and food commodities while the mining sector is expected to strengthen following the higher production of natural gas, crude oil and condensates.

"The services and manufacturing sectors are expected to be the key contributors to overall growth, driven by the continued resilience of domestic demand and supported by higher international trade activity," BNM said.

However, the still-weak global dynamics are expected to hurt the country's exports, albeit, at a smaller quantum.

According to BNM, the country's net export of goods and services is expected to contract 19.1% this year compared to a decline of 29.4% in 2012.

The improvement is seen coming from better sales of manufactured products. This is expected to mitigate the impact of lower commodity exports during the year.

"In line with the pace of expansion in domestic demand, imports of capital and consumption goods are also expected to moderate.

"However, imports of intermediate goods are projected to turn around and record positive growth as the improvement in the global economic environment leads to an increase in manufacturing exports," BNM said.

Rising inflation a key concern

The prospects of rising inflation will be key concern for BNM as it crafts its monetary policy this year. BNM foresees inflation as measured by the consumer price index, to average between 2% and 3% in 2013.

This compares to the 3.2% and 1.6% recorded in 2011 and 2012 respectively.

According to the central bank, while its monetary stance in 2012 had focused on supporting growth, the direction for 2013 will emphasise on managing the potential risk to inflation and economic expansion.

"Under this challenging global economic environment, the focus of policies by the Government and the Bank will be on supporting the Malaysian economy to grow at a sustainable level while mitigating the risks arising from the global environment, including possible shocks to inflation.

"The MPC (monetary policy committee) considered the prevailing level of the OPR (overnight policy rate) and the current monetary policy stance to be appropriate for the inflation and growth outlook," BNM said.

In addition to the domestic backdrop, BNM said it will continue to evaluate global economic and financial developments and their impact on Malaysia's inflation and economic growth.

BNM said its current year (2013) inflation projection has taken into consideration the potential increase in prices of selected food commodities and "adjustments to domestic administered prices".

The adjustment to local administered prices is by virtue of a potential revision in subsidies for government-controlled items such as fuel and electricity.

"Demand-driven price pressures are expected to be moderate. The wider forecast range of (2% to 3%) reflects the greater uncertainty in the external and domestic environment," BNM said.