Malaysia’s economy to expand 5.3% next year: Standard Chartered bank

Malaysia's economy is expected to expand 5.3% next year from an estimated 4.7% this year, Standard Chartered said today. External demand is expected to pick up next year, mitigating the expected slowdown in domestic demand.Private consumption may moderate next year due to higher inflation, subsidy cuts and high household leverage, said Standard Chartered in its 2014 global focus on "Rising East, Emerging West" report.

Its growth forecast was in line with the government's projection of 5.0-5.5% gross domestic product (GDP) growth for next year. "GDP growth was 4.5% in nine months of 2013 and appears to be on track to meet our full-year forecast of 4.7%," the bank said.

The report said Malaysia's labour market will remain healthy, supporting wage growth and consumption, while the manufacturing sector is likely to strengthen, thanks to the pick-up in external demand. "This should support wage growth in the sector, which accounts for about 17% of total employment and which saw a wage increase of about 7.6% in nine months of this year, despite a softness in manufacturing," said Standard Chartered.

Domestic factors are likely to be more supportive of the ringgit next year, the bank said. However, the local unit is expected to underperform in the first half of next year due to heavy bond inflows in recent years. "This is largely based on our view that the US Federal Reserve will start quantitative easing tapering in June next year. "We expect the ringgit to rally in the second half of next year once tapering is fully priced in and against a backdrop of continued Chinese yuan appreciation," the bank said.

Net external demand is expected to continue to improve in 2014 after subtracting an average 3.5 percentage point from quarterly year-on-year GDP growth between the first quarter of last year and third quarter of this year. The contribution from net external demand is likely to be flat next year while exports are expected to rise and imports may keep pace.

Headline consumer price index inflation should rise to 3.4% in 2014 from a projected 2.1% in 2013, slightly higher than the government's 2.0 to 3.0%, Standard Chartered said. The bank added that fuel price hikes in September 2013 would continue to add to year-on-year inflation readings until September 2014.

"We also expect the government to gradually lower subsidies throughout the year although the exact timing of the cuts is difficult to predict."

Malaysia's credit rating will remain stable next year, as the ratings agencies are looking for further subsidy rationalisation.

The healthy labour market will also add to inflation pressures, as businesses may find it easier to pass on cost increases. "Even with inflation likely to trend higher next year, we think Bank Negara Malaysia may refrain from raising policy rates until a firm growth trend is established. "The central bank may wait until demand-pull inflation emerges and starts to add to supply-driven inflation-driven by subsidy cuts," Standard Chartered said.

Improving external demand should support the current account, the bank added.
Source: Bernama 04-12-2013

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