Friday, May 21, 2010

Can Malaysia Achieve 7.7% Growth?

KUALA LUMPUR: High growth forecasts made by foreign economists have not prompted their local counterparts to change their tune, as they feel that the current data and expectations do not warrant such bullishness.

Economists contacted by StarBiz said that uncertainty over the latter part of this year and a higher base effect achieved in the second half of 2009 would make it difficult for the economy to hit a growth rate in excess of 7% for the year as predicted by a few foreign brokers.

“Such high growth rates can be achieved if there is stronger-than-expected recovery in exports and private investment,” said Affin Investment Bank economist Alan Tan, who has forecast the economy to grow by 4.3% this year.

The official growth forecast for 2010 is for gross domestic product (GDP) to expand between 4.5% and 5.5%.

Recent forecasts of growth rates that are well above the official forecast and that of many economists was first made by JPMorgan which projected Malaysia's economy will grow by 7.7% this year.

The foreign broker, which initially had a forecast of 6.8%, said the upward revision was made in view of strong regional production data in the first quarter and the positive outlook for the manufacturing sector.

HSBC Holdings plc senior Asian economist Robert Prior-Wandesforde last week said he expected Malaysia's GDP to expand 7.3% this year on an aggressive V-shaped recovery in exports and to be lifted by higher commodities prices and domestic demand.

Maybank Investment Bank economist Suhaimi Illias said the change in the expectations of the foreign brokers was down more to a situational rather than fundamental shift.

Suhaimi, who has forecast a 5.3% economic growth this year, feels that the bullish outlook for Asia would have influenced the foreign brokers' decision.

He said for growth to spike upwards, exports and investments would have to improve substantially. He, however, pointed out that leading indicators for Malaysia's economy in December and January had slowed and that growth rates could moderate in the next six months.

Helping drive economic growth higher could be the reforms that could take place under the New Economic Model but economists said implementation of that had to first take place.

“Growth can exceed the Government's forecast if all those reforms work,” said AmInvestment Bank Bhd senior economist Manokaran Mottain.

Manokaran, who has a growth forecast of 5% for this year, said the performance of external economies was also critical if Malaysia's economy were to grow faster than the official prediction.

“If external demand remains as strong as in the first half then there are grounds to revise economic assumptions,” he said.

How that unfolds is still unclear given Europe's problems in dealing with Greece's debt and also how the governments of developed countries handle their exit from pump-priming initiatives undertaken to deal with the recent global financial crisis.

CIMB Research head of economics Lee Heng Guie said uncertainty still clouded the global outlook, particularly in the second half of this year.

“The global recovery will be gradual and uneven. In our view, though the global economic recovery is well under way, risks remain in the outlook and there could be bumps along the road,” he said.

“The advanced economies are expected to record moderate growth in 2010 given the prevailing high unemployment, ongoing deleveraging process and the still-impaired financial system that continues to restrain lending.''

Lee, who has forecast Malaysia's GDP to grow by 4.8% this year, said Asian economies would continue to lead the global recovery due to the gaining traction of both domestic and external demand.

“China and India are expected to grow strongly this year, but they are already facing an asset price bubble and the potential threat of inflation risk,” he said.

“Policymakers have tightened credit by hiking the reserve requirement ratio and interest rate and will continue to move towards less accommodative monetary stance to prevent the build-up of financial imbalances.”

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