Thursday, April 10, 2014

IMF Lifts Malaysia’s GDP Forecast To 5.2pc

KUALA LUMPUR: The International Monetary Fund (IMF) yesterday upgraded Malaysia’s growth forecast to 5.2 per cent this year and five per cent next year.

Malaysia’s growth forecast came in above the 4.9 per cent average growth forecast projected for five Asean economies. The rest are Thailand, Indonesia, Vietnam and the Philippines.

This is against a backdrop of uneven developments in the Asean economies, it warned, referring to Indonesia and Thailand, where investor sentiment is expected to be subdued. 

“Malaysia and the Philippines, however, are on a more positive trajectory,” it added. 

Ahead of its spring meetings for the IMF and the World Bank in Washington from tomorrow till April 13, the fund described the global economy as on a recovery trend, albeit uneven. 

Much of the impetus for growth is expected from advanced economies. 

Although downside risks have diminished overall, lower-than-expected inflation poses risks for advanced economies. There is also rising financial volatility in emerging market economies, and increases in the cost of capital will likely dampen investment and weigh on growth. 

Malaysia, the Philippines and Thailand are relatively more integrated with global trade and financial markets, and, in Malaysia’s case, it is also relatively more exposed to advanced economies in the trading of goods, unlike emerging markets like Brazil and India. 

Among its key findings, the IMF said the growth in the United States economy would typically raise emerging markets’ growth through a small boost to emerging market economies’ terms-of-trade growth. 

“The impact effect tends to be stronger for economies that are relatively more exposed to advanced economies in trade, for example, Malaysia and Mexico.” 

Adverse external financing shocks hurt economies  more when they tend to be more exposed to capital flow volatility, but the effects are less acute for some economies, despite their financial openness, which could be due to relatively strong macroeconomic positions like Malaysia. 

Chile and Malaysia are among the few economies that have tended to hold their domestic interest rates steady or have even cut them in response to higher EMBI (emerging markets bond index) yields. 

Comparing the correlation between economies with China and the US, the IMF said Argentina, Brazil, Colombia, India, Indonesia, Thailand, and Venezuela were closed related with China than that with the euro area or the US. 

In contrast, output growth in Chile, Malaysia, Mexico, Russia and Turkey is more correlated with growth in the US than with growth in China.


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