Credit Suisse: Malaysia likely to outperform regional peers

by **hlk** Tue 20 Dec 2011, 08:04

Credit Suisse has left its 2012 gross domestic product growth forecast for Malaysia unchanged at 4.8 per cent.

KUALA LUMPUR: Malaysia's economy is likely to outperform its
regional peers despite its exposure to the slowdown in the advanced
economies, said Credit Suisse.

There is upside risk to the 4.6 per cent growth number it has forecast for Malaysia this year, comments economist Wu Kun Lung.

"Malaysia remains highly exposed to a sharp slowdown in the
developed world, but, on a relative basis, we think its domestic demand
will hold up better than that of the other small open economies in the
region."

Credit Suisse has left its 2012 gross domestic product (GDP) growth forecast unchanged at 4.8 per cent.

The economy expanded strongly by 5.8 per cent in the third quarter,
underpinned by private consumption (7.4 per cent) and fixed investment
(6.1 per cent) as well as a surge in government consumption (21.8 per
cent).

"On a seasonally adjusted basis, we estimate that GDP
expanded 4.6 per cent quarter-on-quarter in the third quarter, stronger
than that of Korea, Thailand, Singapore, the Philippines, Hong Kong, and
Taiwan."

Wu felt private consumption growth will remain
robust, partly due to high palm oil prices. Fiscal spending by the
government should continue to help boost spending in the next few
quarters, ahead of the general election.

"With revenues coming
in much higher than budgeted this year as well as the backloading of
the planned expenditure, the government has room to boost spending in
the next few quarters."

The government spent RM154 billion in the first three quarters of the year.

Its revised 2011 budget suggests that it plans to spend another RM76.8
billion (9.0 per cent of GDP) in the fourth quarter, which is 20 per
cent more than it spent in the fourth quarter last year.

The
one-off cash transfers to the poor, bonus payments and pay rises for
civil servants, and various tax exemptions announced in the 2012 Budget
should provide a boost to sentiment and private consumption.

While Malaysia has made some structural reforms which led to improved
global rankings in competitiveness and ease of doing business, the
popular reforms such as the Goods and Services Tax (GST) have been
postponed and are unlikely to happen before the general elections, he
added.

Wu said the quality of the Barisan Nasional win will
determine whether Datuk Seri Najib Razak will stay as prime minister and
gain enough support to push through further changes.

On the
monetary policy, Wu expects Bank Negara Malaysia (BNM) to remain
defensive as risks surrounding the euro zone remains high and inflation
likely to fall below 3.0 per cent year-on-year in the first quarter.

It expects the Overnight Policy Rate to be on hold until end-2012
although BNM has both the scope and willingness to cut the policy rate.