MARC projects decent growth for Malaysian economy

MARC projects decent growth for Malaysian economy
Posted on 1 January 2014 - 05:39am
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PETALING JAYA (Jan 1, 2014): Malaysian Rating Corp Bhd (MARC) is of view that Malaysia's headline gross domestic product (GDP) will be respectable at 5.0% in 2014, although it will likely be in the lower range of the government's forecast.

It said this was due to numerous challenges ranging from softer consumer spending in the wake of rising prices partly attributed to the rationalisation of subsidies as well as stricter lending measures by financial institutions following the increased level of impaired loans and measures imposed by Bank Negara to cap rising household debt.

"We also think that a meaningful recovery of global trade is the key to Malaysia's ability to maintain a decent 5% growth in 2014," the rating firm said in a statement here yesterday.

It pointed that domestic demand is also crucial to achieving the 5.0% headline GDP growth in 2014.

MARC said positive contribution from private investments may prove to be the savior for the economy in 2014 as the pace of private consumption may moderate due to the knock-on effects from rising consumer prices. With more meaningful recovery expected to take place in 2014, it said the momentum in investments will likely be sustained at a relatively strong level.

MARC said stronger trade performance stemming from firmer global demand for electronic and commodity products and a pick-up in major commodity prices will augur well for the economy despite moderating domestic demand in 2014.

It acknowledges that pressure from rising consumer prices and measures to reduce the government and household debt will somewhat temper the growth momentum in the domestic economy.

However, it believes that a recovery in the external sector, especially in palm oil prices, resilient investment momentum and a stable labour market will support headline growth in 2014.

It said macro imbalances such as budget deficits and the narrowing of current account surplus will slowly improve as the government continues its efforts to strengthen the economic foundation.

"The Malaysian economy has performed slightly below our expectations in 2013 as abysmal trade performance continued to drag headline growth (our June forecast for 2013: 5.0%, latest 4.7%)," it said.

In the first three quarters of 2013, it said GDP growth averaged 4.5%, making it unlikely to register an overall expansion of more than 5.0%. As for ringgit's performance against the US dollar, MARC said it will average between RM3.20 to RM3.30 in 2014 compared to an estimated average of RM3.19 per US dollar in 2013.

"Going forward, we do not discount a further weakening of the ringgit as asset managers continue to re-focus on diverting their investments into dollar-denominated assets following expectations of a stronger greenback on the back of a sustained recovery of the US economy," it said.

"We are of the view that the ringgit may not have a strong upside in the next one year – at least until a clearer picture of the US Fed policy action emerges," it added.

Other factors that may exert a downward pressure on the ringgit include weakening domestic growth momentum, concerns over high household debt and concerns over the shrinking current account surplus.