United Overseas Bank Group (UOB) expects Malaysia's gross domestic product (GDP) in the second half of the year to strengthen, driven by the domestic demand.
UOB's head of research and investor relations, Jimmy Koh said the bank had forecast the country's GDP growth in the first half of 2013 at 4.5 per cent and expect a 4.7 per cent growth in the second half of the year.
“While external demand shows a sign of recovery, the effect would be more significant next year,” he said, adding that by end of 2014, Malaysia's GDP growth is expected to be about 5.5 per cent.
Koh was speaking to reporters at UOB briefing on the economic outlook for the second half of 2013, here yesterday.
UOB also forecast a 4.6 per cent growth in the second quarter GDP, which will be announced today. (21/8)
Koh said the private consumption has held up, rebounding from 6.2 per cent in the last quarter of 2012 to 7.5 per cent year-on-year in the first quarter of 2013, while Malaysia's GDP growth eased to 4.1 per cent year-on-year in the first quarter of 2013 from a revised 6.5 per cent in the last quarter of 2012.
“This was helped partly by budget hand-outs and the implementation of minimum wage for the private sector in early 2013,” he said.
Koh added that with the conclusion of the General Elections and the continued roll out of the Economic Transformation Programme (ETP) projects will help to boost foreign direct investment in Malaysia and sustain the country's GDP growth.
On the pending withdrawal of the US Federal Reserve's quantitative easing (QE) programme, Koh said that stronger economic fundamentals, healthier balance sheets and rising intra-regional trade will help to counter the potential of US$1.4 trillion in capital outflows.
“We believe that through QE tapering will be a short-term destabilising factor in Asia, (but) the economic fundamentals of the region have strengthened due to the prudent economic policies implemented since the 1997 Asian financial crisis,” he said.
The depreciation in Asian currencies is not a reflection of economic weaknesses in the region, said Koh but a result of improving growth prospects in the US although the announcement of QE pullback has put pressure on Asian currencies.
“In this respect, the ringgit will remain choppy against the US dollar. Expectations of QE tapering in the US could keep USD/MYR above the bank's year-end target of between 3.29 to 3.30 in the short-term,” he said.
UOB maintained its forecast that Bank Negara Malaysia will keep its benchmark overnight policy rate steady for the rest of the year.
However, the bank does see greater prospects of tightening in the later part of 2014 as domestic demand retains its strength.