Monday, December 24, 2012

World Bank Upbeat On Malaysian Economy

KUALA LUMPUR: The World Bank says Malaysia will be able to weather a weak global environment next year, thanks to its resilient domestic demand.

Malaysia had performed well this year despite weakening demand from advanced economies and China, the bank said. 

This dichotomy, it added, can be sustained next year. 

In its latest East Asia and Pacific Outlook, the World Bank has projected Malaysia to grow by 5.0 per cent in 2013. 

"There is momentum in investment growth. A number of projects that contributed to the surge in investment in the first half of 2012 will continue to contribute a larger amount of value-added to the economy in the near term.

"There is a positive feedback loop among the implementation of investment projects, fiscal policy, and private consumption," it said, referring to the tight labour market which will support consumption growth.

The World Bank does not expect commodity prices to decline significantly in 2013, which will provide support to fiscal policy and investment growth.

Global outlook for next year will improve compared to 2012.

"Should a new shock lead to a significant deviation from this baseline, exports would contract and commodity prices would decline, which would unravel the favourable dynamics described above."

Malaysia's near-term outlook hinges on the structural reforms.

But it also said Malaysia's fiscal policy will have to walk a fine line towards consolidation without disrupting the growth momentum.

"Malaysia's near-term outlook owes much to commodity sectors."

It said a significant portion of investments had been directly in the oil and gas sector, the expansion in public consumption and capital formation had been financed to a significant degree by commodity revenues (present and future), while investments in real estate are, to some extent, also linked to the recycling of commodity revenues.

"These investments are part of a sound strategy to ensure that the resource sector continues to provide revenues in years to come."

But it warned that, by themselves, they bring risks related to possible shocks to commodity prices and, conversely, higher commodity prices may lead to "Dutch disease" and a loss of competitiveness in tradeable manufacturing and services sectors.

"To mitigate these risks, Malaysia needs to accelerate the implementation of productivity-enhancing reforms to boost capabilities and competition, and thus raise productivity of non-commodity sectors."

-- BTimes

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