Economists contacted agree with Bank Negara's gross domestic product (GDP) growth forecast of between 4% and 5%, with the domestic economy providing the impetus, while global growth will continue to be challenged by the eurozone debt crisis.
Although some encouraging signs are emerging from the advanced economies, Bank Negara trimmed growth estimate for 2012 from the 5% to 6% projected by the Treasury during Budget 2012 in October 2011.
“This is higher than our estimate of 3.8% but in line with market consensus of 4%. Given the loss of momentum for the export engine, the policymakers are pinning their hopes on domestic demand to sustain economic growth.
“Private sector spending is projected to deliver 6.6% growth, contributing 4.4% points to 2012 GDP growth,” said CIMB head of economics Lee Heng Guie.
A mono-rail approaches its station as traffic passes by in Kuala Lumpur. Malaysia forecasts economic growth of between 4% and 5% this year.— AFP
MIDF Research head of economics Anthony Dass said the growth outlook projected by Bank Negara appeared achievable.
“While the external uncertainties will be the major drag to the domestic economic expansion, growth impetus in 2012 would come from domestic demand, backed by private expenditure and public expenditure. We are projecting a growth of 4.8% for 2012,” said Dass.
Lee concurs with the central bank's assessment of the risks to domestic growth in 2012, including downside risks to global growth due to fiscal drags from the eurozone's debt-impaired countries; volatility in capital flows which could misalign asset prices and distort resource allocation; higher-than-expected inflation coming from food and fuel prices, which could dampen household consumption; and much slower growth for Malaysia's major trading partners.
Meanwhile, after growing by 13.7% to RM580.6bil at end-2010, Malaysia's household debt rose at a slower rate of 12.5% to RM653.1bil at end-2011.
“We view the rising household debt-to-GDP ratio of 76.6% in 2011 as a worrying trend, which prompted Bank Negara to tighten lending rules to ensure that households live within their means,” said Lee.
While the central bank acknowledged that the level of household debt was concerning and might have some negative implications on consumer spending, it was optimistic that households would remain financially sound, with strong financial buffers to service debt obligations and cushion against income shocks.
“In terms of percentage contribution to real GDP, personal consumption will contribute about 3.4 percentage points in 2012, from 3.7 in 2011, supported by continued access to financing and accommodative monetary conditions,” said Affin Securities economist Alan Tan.
As downside risks to the economy has ease, Lee believes that the central bank will keep the policy rate at 3% until the year is out. He said that accommodative interest rates were still needed to support domestic demand as there were still tail risks on the external front.
On the monetary management, Bank Negara is expected to maintain its accommodative monetary policy.
“With inflationary pressure easing, projected to hover between 2.5% and 3.%, it provides more breathing space with respect to their interest rate policy.
“Our inflation outlook for 2012 is 2.8%-3.%. We are of the view that Bank Negara would leave its policy rate unchanged at 3% in 2012,” said Dass.