Friday, January 24, 2014

Robust 9.4pc Investment Growth Likely

KUALA LUMPUR: Malaysia, which has the region’s highest investment to gross domestic product (GDP) ratio, is likely to see robust growth of 9.4 per cent in investments this year, according to Credit Suisse.

The research house said while domestic demand is slowing across Asean, what makes the nation unique is it ability to push through the infrastructure projects under the Economic Transformation Programme such as the doubletracking of southern railways and the second phase of the Klang Valley Mass Rapid Transit. 

“While the government is projecting investment by these entities to fall by 13 per cent year-on-year in 2014, we note that it also projected an 11 per cent year-on-year decline in its 2013  budget announcement only to recently revise the figures up to a 50 per cent year-on-year increase,” said economist Santitarn Sathirathai. 

On top of the government’s infrastructure investment push, the year-on-year rise in the value of manufacturing investment requests to the Malaysian Investment Development Authority, which is around five per cent of GDP, also bodes well for investment growth in 2014. 

“This increase in capex applications has been led by the electronics and petroleum sectors.” 

He said the slowdown in public investment growth in 2013 reflected temporary disruptions due to the general election and Umno elections, implying that a rebound is likely this year. 

Meanwhile, Credit Suisse said Malaysia may need to increase fuel prices again this year if it wants to move towards reducing its budget deficit and meet the 3.5 per cent GDP target next year. 

“This will likely add to headline inflation and have some negative implications on GDP growth, while allowing the federal budget shortfall to reach its target and preventing the debt from exceeding the self-imposed limit of 55 per cent of GDP.” 

Government spending had decelerated in the third quarter of 2013, falling from a peak of 43 per cent year-on-year in the first quarter to three per cent. 

Santitarn, however, warned that the ongoing subsidy rationalisation process and the weaker ringgit can add pressure to the consumer price index (CPI). 

Credit Suisse has revised its 2014 CPI to 3.5 per cent year-on-year. 

The Singapore research house expects private consumption growth to slow, while exports and investment will drive GDP growth. 

"Household spending will likely face a number of challenges. 

"This will be in the form of lowering government subsidies in the context of weak palm oil and rubber prices resulting in a real income squeeze for households, high household leverage and recent macro-prudential measures by the central bank, capping further borrowing by consumers." 

Credit Suisse expects Bank Negara Malaysia to hike the policy rate by 25 basis points before year-end. 

This will add to the government's recent measures to tighten credit conditions and tame property prices, including the hike in the real property gains tax and ban on the Developers Interest Bearing Scheme. 

"We think a combination of rising inflation, tightening up of credit conditions on the back of still elevated household debt and weak commodity prices will erode household spending growth."


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