The verdict is still out on how the country's economic growth can be sustained next year in the face of the continuing uncertainty and volatility following the better-than-expected third-quarter gross domestic product (GDP) data released by Bank Negara recently.
According to the Finance Ministry's macroeconomics head Lim Seng Gim last week, the economy would grow 5% to 6% next year spurred by private investment, which would be the main driver of growth, while the World Bank in the latest Malaysia Economic Monitor report expects 4.9% growth next year.
Singapore-based Citigroup Inc senior economist Kit Wei Zheng told StarBiz that the third quarter's unexpected GDP growth showed the sensitivity of growth to fiscal stimulus.
“It's difficult to pin down how the economy will perform next year although fiscal support will help for at least one or two quarters. I'm not being optimistic with the amount of uncertainty and downside risks,” he said, adding that the economy should grow 5% next year.
Kit said while electrical and electronic exports had not been as badly affected based on latest data, leading indicators suggested uncertainties surrounding exports for Malaysia and the region.
Third-quarter GDP grew 5.8% on a year-on-year basis versus a Bloomberg survey for a 4.8% median expansion supported by resilient domestic demand in the form of private and public sector spending as well as private consumption.
While government estimates have been maintained at 5% to 6% GDP growth for 2011, there have been reports questioning the growth momentum going forward given that unemployment remained high in the United States and the likelihood of recession in Europe.
Hong Kong-based Morgan Stanley Research economists led by Chetan Ahya said in a report that Malaysia faced a disinflationary scenario as the three-legged growth model weakened.
They said slower global demand would impact the manufacturing and commodity growth legs, leaving the economy running a one-legged race on fiscal pump-priming and public sector spending.
They also cut 2012 GDP growth estimates for the Asia ex-Japan region to 6.9% from 7.3% estimated in August on further evidence of weakening domestic demand and external environment due to the eurozone problems.
“The region's deep trade and financial linkages with the rest of the world imply that shocks to the global economy will be transmitted to the region through these channels,” they said, adding that the pace of recovery would be more gradual with GDP growth recovering to 7.5% in 2013.
They said austerity measures and weaker European demand would translate into weaker external demand growth while the slowdown in final demand among developed economies would likely be amplified on the Asia ex-Japan region's cross-border production network leading to significant export slowdown next year.
They said deleveraging among European banks would spill into the region's trade financing costs although given the dependence on trade, most of it could be short term but would add to upward pressure on the cost of risk capital for longer term.
“Moreover, we do not expect a strong recovery in the developed world in 2013. For the Group of 10, we expect GDP growth to recover to 1.4% in 2013 from 1.2% in 2012,” they said.