Analysts keep GDP growth forecast

Analysts keep GDP growth forecast
Posted on 21 March 2014 - 05:37am
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PETALING JAYA: Analysts have kept their gross domestic product (GDP) projections for 2014 above 5% despite the central bank yesterday widening the range for its own growth projection to between 4.5% and 5.5% on heightened external uncertainty.

The Finance Ministry in October 2013 had projected a GDP growth of between 5% and 5.5% for 2014.

Hong Leong Investment Bank Research (HLIB Research) said it is maintaining its GDP growth projection for 2014 at 5%, with positive contribution from net exports offsetting more moderate domestic demand growth.

"We view Bank Negara Malaysia's (BNM) revision in official growth forecast as a tactical move, as it widened the forecast range to capture the heightened external uncertainty while maintaining its conviction of a resilient domestic demand growth amid moderation trend," it said in a report yesterday.

The research house also maintained its CPI growth forecast at 3% even though it sits on the lower end of BNM's projection of 3-4%

"We concur that headline inflation will taper off (barring any adjustment in administered prices) given moderate domestic demand pressures. We expect the inflation rate to peak around 3.5% in February or March 2014 and to taper off gradually thereafter as the government delays further subsidy removal," said HLIB Research.

With the heightened downside risks to growth and manageable upside risks in inflation, HLIB Research expects BNM to hold the overnight policy rate (OPR) steady at 3% throughout the year.

"During the briefing, BNM also said that the new reference framework (base rate) will be effective Jan 2, 2015 as the transition is expected to work well in a 'stable environment'. We take this as an indication that OPR will not be altered unnecessarily before the monetary policy transmission mechanism is enhanced under the new reference rate framework."

BNM also said that real interest rates can remain negative for a long period, so long as the financial imbalances such as high household indebtedness, rising property prices and business sector leverage, do not deteriorate to become a destabilising factor affecting growth outlook or financial stability.

HLIB Research expects more volatility in the ringgit as BNM gradually "abandons interventionist policy". BNM also said Malaysia now has a high tolerance level of a more volatile ringgit rate given the deeper and broader capital market.

"Any large capital flows shall be adjusted through the exchange rate. BNM's international reserves will only be used for intervention as the last resort."

Meanwhile, BIMB Securities Research also maintained its GDP forecast at 5.2%. It said that domestic demand will continue to be the main driver of growth and is expected to expand albeit at a slightly slower pace.

"Malaysia's economic growth will likely edge upwards in 2014, brought about by a stronger recovery in the external sector, coupled with a resilient domestic economy. Malaysia remains a highly opened economy with exports as a key source of demand.

"In tandem with an anticipated rebound in developed countries, external demand growth could potentially spur Malaysia's overseas shipments going forward," it said in a report yesterday.

Last year, the semiconductor industry posted worldwide record sales of US$305.6 billion (RM1.014 trillion) and this is forecasted to rise 4.1% to US$317 billion this year.

"There's also a sustained expansion in manufacturing activity worldwide, as the JPMorgan Global Manufacturing PMI remained at an expansionary level. These indicate that global trade activity and trade cycle are gaining momentum, and Malaysia's exports and manufacturing sector could benefit from improving external demand," said BIMB.

According to BIMB, economic growth in the recent years has been highly dependent on resilient domestic demand, a trend that would continue this year. While domestic demand is expected to moderate following the ongoing fiscal consolidation, the external sector is expected to benefit from the improving global conditions.

"The Malaysian economy will continue to expand, driven by sustained growths in private investment activities. Positive contribution from private investments may prove to be the saviour for the economy in 2014 as the pace of private consumption may moderate due to rising consumer prices," it added.