Update IMF sees downside risk in Malaysian economy

Update IMF sees downside risk in Malaysian economy
Business & Markets 2013
Written by Jonathan Gan of theedgemalaysia.com
Wednesday, 18 December 2013 15:24

KUALA LUMPUR (Dec 18): The International Monetary Fund (IMF) has cautioned that Malaysia's economic growth outlook is subject to downside risks.

In a statement posted on the IMF's website, the IMF said this reflects the uncertain external environment which may have an impact on the country's exports.

"Should the growth outlook deteriorate significantly, there is ample room for BNM (Bank Negara Malaysia) to use monetary policy to support growth.

However, relatively high fiscal deficit and public debt levels afford limited space for a sustained counter-cyclical fiscal response.

"Any fiscal stimulus should be temporary, targeted, and anchored in a credible medium-term fiscal consolidation program. Structural reforms and the all-important subsidy rationalisation and GST implementation should not be delayed or compromised," the IMF said.

According to BNM, Malaysia's gross domestic product (GDP) grew 5% in the third quarter from a year earlier as exports grew amid firm domestic demand. BNM is maintaining its 2013 GDP growth forecast of 4.5% to 5%.

The IMF's statement was issued following its officials' recent visit to Malaysia between December 4 and last Monday (December 16).

Despite the downside risk, the IMF team led by Alex Mourmouras, mission chief for Malaysia, said the nation's policy makers have managed the economy well.

Mourmouras who had met government and BNM officials, said the country has exhibited resilience in weathering the global financial turbulence.

“The mission commends the authorities for their adept economic management in the context of a difficult external environment for Malaysia in 2013,” Mourmouras said.

He said this reflects the "depth of Malaysia’s financial markets and the role of its exchange rate as a shock absorber, coupled with BNM’s strategy of intervening to avoid excessive volatility".

On the government’s fiscal deficit target, Mourmouras said the government is on track to reach its goal of 4% of GDP in 2013.

“The 2014 federal target of 3.5 percent of GDP is feasible if, as assumed in the mission’s baseline, growth in current spending is contained within a tight envelope,” Mourmouras said.

He said macroprudential policies implemented by BNM since November 2010 to slow property price inflation and credit growth are well complemented by measures in the 2014 Budget.

Under the budget, the government has outlined measures to increase real estate taxes while providing support for low income home buyers.

“Inflationary expectations are well anchored; however, vigilance will be required in order to preempt second round effects associated with the implementation of the minimum wage, subsidy cuts, and GST introduction," Mourmouras said.

its just an expectation on a possible downside risk.
stimulus is not required here , all we see is control from bnm sufficient.