BNM: Downside risks remain

BNM: Downside risks remain
Business & Markets 2013
Written by Chong Jin Hun of theedgemalaysia.com
Thursday, 21 March 2013 10:06


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KUALA LUMPUR: While Malaysia is projecting another steady economic growth of between 5% and 6% this year after posting a credible 5.6% last year, there remain risks to the nation’s growth outlook this year, says Bank Negara Malaysia (BNM).

“As in 2012, the potential re-emergence of instability in the euro area and slower growth in Malaysia’s major trading partners may affect the Malaysian economy.

“While pressures from global commodity prices have receded, upside risks from non-fundamental factors such as adverse weather conditions and geopolitical developments could push commodity prices higher and adversely affect the growth prospects of Malaysia’s major trading partners,” the central bank said in its 2012 BNM annual report.

BNM said upside risks to inflation arising from both external and domestic factors should also not be ruled out. The central bank expects inflation to trend higher at between 2% and 3% this year from 1.6% last year.

“Externally, global food and energy prices could rise significantly should disruptions to global supplies of commodities occur. A prolonged drought in key food-producing countries and a resurgence of geopolitical risks in the Middle East and North Africa could contribute to higher prices.

“Domestically, higher risks could also emanate from larger than expected adjustments to administered prices, especially should global crude oil prices increase significantly. There is also the risk of strongerdemand-driven price pressures in the event of a better than expected recovery in the external sector,” BNM noted.

On the outlook for this year, the central bank said Malaysia’s economic activity will be anchored by the continued resilience of its domestic demand, and it will be supported by a gradual improvement in its external sector.

Domestic demand is expected to grow 8.1% this year against 10.6% last year on continued growth of private investment and consumption. Private sector investment, which grew 22% last year to RM135.9 billion, is projected to grow 15.6% this year. Private consumption is also expected to show another strong growth of 7.1% this year from 7.7% last year.

“Private investment is likely to remain firm, led by continued public spending in the domestic-oriented sectors, the on-going implementation of infrastructure projects and a gradual improvement in external demand.

“Private consumption is expected to grow at a more modest rate, supported by sustained income growth and stable employment conditions.”
The central bank expects all crucial segments of the Malaysian economy to see expansion this year. The CONSTRUCTION [] sector is projected to lead growth with a 15.9% expansion due to the implementation of major infrastructure projects. The sector grew 18.5% last year.

The services sector, after growing 6.4% last year, is expected to show a growth of 5.5% this year. Last year, the sector constituted 54.6% of GDP.
Expansion in the nation’s mining and quarrying sectors will jump from 1.4% last year to 5% this year. This will be followed by the manufacturing sector (4.9%) and agriculture (4%).

BNM said better growth prospects for regional economies last year will provide strong support for Malaysia’s exports. The region’s economic growth will be led by China, which is projected to show a strong growth of 8.2% this year.

India, another important export destination for Malaysian exports, is expected to register a growth of 5.9%. Other notable increases in GDP growths for this year are Indonesia (6.3%), Thailand (6%), the Philippines (4.8%) and S Korea (3.6%).

The central bank said the Malaysian government’s fiscal deficit is expected to narrow to 4% of its GDP this year from 4.5% last year. The government is targeting to reduce the fiscal deficit to 3% of GDP by 2015 through a comprehensive review of its tax system, subsidy rationalisation and measures to increase spending efficiency.

The country’s labour market conditions will remain favourable this year, with unemployment projected to remain low at 3.1%.

BNM is forecasting global economic growth to increase by 3.5% this year from 3.2% last year. World trade, meanwhile, is projected to show a growth of 3.8% this year against 2.8% last year.

The United States’ economy is expected to grow 2% this year on improvement in private demand. The eurozone, however, is expected to remain weak due to structural constraints and its continued fiscal consolidation. It is expected to register a contraction of 0.2% this year from -0.6% last year.



This article first appeared in The Edge Financial Daily, on March 21, 2013.