Economists here agreed with the International Monetary Fund’s latest assessment that the resilient Malaysian economy can ride out the current external environment which is fraught with uncertainties and dreariness.
They were not surprised by the IMF’s 4 per cent growth forecast for 2012 as the fund has been known to be conservative with projections which are usually lower than official growth
“But the fund recognises that in view of a 5-6 per cent export growth outlook for this year, domestic private expenditure will be the growth driver in Malaysia, supported by the Economic
Transformation Programme,” MIDF Research economist Anthony Dass said.
AmResearch director of economic research Manokaran Mottain said fiscal measures via the ETP as well as the Government Transformation Programme blueprint will in all certainty boost domestic activities apart from the existing strong financial measures in place, which explains the fund’s description of Malaysia’s resilience.
“Malaysia would not need a stimulus package if the ETP is implemented as that itself will stimulate economic activities,” he said, referring to the stimulus packages which the government
had to roll out during the 2008/2009 economic crisis.
Based on the latest industrial output as well as trade data, Manokaran was, however, confident that the growth for 2011 would be stronger than the IMF’s 4.7 per cent projection.
Trendwise, growth could be around five per cent as 2011 has been a strong year, he added.
"But we agree that it can go below the trend in the first half and below five per cent in the first quarter of 2012, mostly due to seasonal factors in the first quarter," he said.
In its latest annual report on Malaysia, the fund said the country is well-positioned to face the challenging external environment but said public finances and structural reforms are crucial to raise the country's growth potential for a more balanced growth.
The IMF has projected Malaysia's economy to slow to four per cent in 2012 and expects inflation to ease and remain contained.
Although a slower growth is still credible under the circumstances, Dass is looking at a 4.8-5.5 per cent range in his GDP growth outlook for 2012.
"Our 5.5 per cent is on condition that the US data continues to be promising and if the momentum holds up, then the second half would be better. Likewise in the case of Europe, if there is a mild recession as projected and Greece does not default, the region could see a flat or 0.5 per cent growth.
"If all these fall into place and coupled with a 8.5-8.8 per cent growth for China, commodity prices will likely appreciate in the second half, which should benefit Malaysia," he said.
He also expects the electrical and electronic exports to pick up in the second half as inventory level has bottomed out.
Dass said the fund recognised the structural reforms taking place, albeit slow but "at least it is moving in that direction".
"Malaysia's public debt is still manageable, being more than 50 per cent of the GDP - which we don't want to rush to cut now otherwise we could choke growth - which we cannot afford to do now."
The Fund recommended that further efforts be in place to better target expenditure, broaden the tax base and enhance fiscal transparency.
On the structural reforms, Manokaran also agreed that they must be accelerated to to reduce the fiscal deficit to GDP ratio.
"The government should stress on prudent management during economic uncertainties, driving the message that both private and public sector need to help each other."
The IMF executive board in its latest report commended the authorities for Malaysia's strong macroeconomic performance in the aftermath of the global downturn. "Underpinned by robust fundamentals and policy frameworks, Malaysia is well positioned to face the challenging external environment in the period ahead," it said in the report released following its annual Article IV consultation with Malaysia on Monday last week.
The IMF directors supported Malaysia's current monetary policy. They saw room for lowering the policy rate if growth prospects worsen significantly. The directors noted that letting the exchange rate move flexibly in line with fundamentals while limiting excessive volatility would allow the real exchange rate to appreciate over the medium term.
The directors noted that Malaysia's financial system remains sound, well capitalised, and resilient. In case downside risks materialise, extraordinary support measures similar to those deployed in 2008-09 could be reinstated, they added.
The IMF directors said the significant increase in household indebtedness warrants close monitoring. "In this context, directors welcomed the prudential measures taken recently, including the introduction of guidelines to ensure that borrowers' debt is in line with their incomes," they said.
They looked forward to the upcoming Financial Sector Assessment Programme (FSAP) report.
The directors also welcomed the ambitious reform agenda to boost potential growth, based on comprehensive diagnoses of the bottlenecks that hinder investment and productivity. In particular, they stressed the need to improve the business climate, enhance competition, upgrade workers' skills, and create economic opportunities for all Malaysians.