Alliance Research is raising its forecast for Malaysia's gross domestic product (GDP) this year to 5.5% from 5% previously on the strength of an expansion in the manufacturing and services sectors led by domestic demand factors.
Alliance Research chief economist Manokaran Mottain said in a report that although the economy would slow down to a 5.2% pace year-on-year in the first quarter following the 6.4% surge in the fourth quarter, growth in private sector consumption and investment activities would help lift the economy from the third quarter onwards.
“We expect continued growth in gross investment in 2013, still rising at double digits of 11.2% and contributing 3 percentage points to GDP. Growth is supported by capital spending in telecommunications, real estate and aviation and the ongoing implementation of projects in the oil and gas sector,” he said.
The revised forecast comes just before Prime Minister Datuk Seri Najib Tun Razak's presentation of the Economic Transformation Programme (ETP) and Government Transformation Programme annual reports tonight.
The market consensus for this year's GDP growth remains at 5% with a 5.1% first-quarter expansion while the Treasury forecasts GDP to grow 5% to 5.5%.
Manokaran said growth would largely be supported by higher levels of domestic consumption brought about by the various incentives from Budget 2013, a healthy labour market, steady income growth as well as an accommodative monetary policy.
“We expect growth to remain weak at 5.2% in the first half, followed by a stronger pickup to register 5.8% in the latter half of the year,” he said, adding that the economy would bottom out by the second quarter.
Manokaran expects the manufacturing sector to register growth of 3.9% with the services sector expanding 6.1%. “While the manufacturing sector will be led by domestic-oriented industries, output from the services sector will be driven by stronger domestic demand emanating from accelerated spending on 10th Malaysia Plan and ETP programmes,” he added.
The services sector would remain the largest contributor to growth, contributing 3.3 percentage points to overall GDP growth and representing nearly 55% of GDP. The main contributors to services sector growth would be finance and insurance, wholesale, retail trade and motor vehicles subsectors.
The boost from the manufacturing sector would come from domestic-oriented industries, adding at least one percentage point to GDP growth and representing 24.6% of the economy. Export-oriented industries would benefit from improved external demand in the later part of the year.
“In 2013, we expect continued expansion in domestic demand (up 7% versus 10.6% in 2012), led by healthy consumer and capital spending by the private sector in the domestic-oriented manufacturing and consumer-related services sub-sectors,” Manokaran said.
Aggregate domestic demand would expand 6.3 percentage points, in large part driven by consumption activities while private consumption would grow by 5.4%, contributing 2.8 percentage points to GDP.
He said exports should grow between 3% and 4% this year, from 0.6% last year with the electronic and electrical industries experiencing a recovery in line with global chip sales but the major worry remained with easing demand for crude palm oil and rubber.