Malaysia: GDP to be 5.7% by end 2014

THE World Bank has revised upwards the growth projection for Malaysia to 5.7 per cent this year from 5.4 per cent, saying the economy will be spurred by improvements in exports.

It noted the better-than-expected performance of 6.3 per cent for the first half of the year, which was derived from a recovery in exports. Exports, which have performed consistently since the third quarter of last year, expanded by five per cent quarter-on-quarter between April and June.

“Driven by higher energy, commodity and petrochemical production and by the continuation of the pick-up in the E&E (electrical and electronics) sector, exports are projected to expand further into 2014 and 2015,” it said in its latest economic outlook yesterday.

The E&E manufacturing sector continued its upward trajectory by expanding for the sixth consecutive quarter.

Malaysia is one of the countries in the region that is well-positioned to raise exports, reflecting its deepening integration into global regional value chains.

The World Bank said the E&E-driven improvements in the non-commodity trade balance and higher energy prices kept the current account in a healthy surplus in the first half of the year. Domestic demand will continue to be a key driver of growth, and is likely to grow by 6.7 per cent this year, although headwinds are expected from fiscal and monetary tightening measures.

“While Malaysia’s near-term growth outlook remains positive, the full effects of fiscal consolidation and less accommodative monetary policy remain to be seen, especially since a second round of fuel
subsidy cuts has been postponed,” it said. (The report was published before the government’s 20 sen hike in fuel price last week).

The fuel subsidy cuts, along with the Goods and Services Tax (GST) in the next quarter, are expected to result in a revised growth projection of 4.9 per cent next year (2015), said the World Bank.

“The implementation of fuel subsidy realisation and a potential consecutive hike in real interest rates will further constrain household consumption, which will moderate into the second half of the year and further into 2015.”

It has projected GDP growth to slow to 4.9 per cent next year and stabilise at five per cent in 2016.

Meanwhile, the World Bank said the global economy is showing signs of recovery but at an uneven pace, with growth expected to rise 2.6 per cent this year and an average of 3.3 per cent from 2015-2017.

World Bank East Asia and Pacific regional vice-president Axel van Trotsenburg said the East Asia Pacific area will continue to have the potential to grow at a higher rate.

“It can grow faster than other developing regions if policymakers implement an ambitious domestic reform agenda, which includes removing barriers to domestic investment, improving export competitiveness and rationalising public spending,” he said in a report.

The World Bank also said there is still a window of opportunity for several countries, including Malaysia, to address the vulnerabilities and inefficiencies that have been created by an extended period of loose financial conditions and fiscal stimulus.

“Measures to bolster revenues and reduce wasteful and poorly-targeted subsidies will create space for productivity-enhancing investments and poverty-reducing programmes.”

/NST 07-10-2014

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