The Malaysian economy may expand more next year compared with this year, spurred on by resilient domestic demand and moderate domestic inflation.
“South-East Asia's third largest economy may grow 5.4% next year, more than the 4.7% pace it previously projected in July,” the Malaysian Institute of Economic Research (Mier) said in a statement.
In the third quarter (Q3) report issued by Mier, it said that the Malaysian economy has been surprisingly resilient amid negative sentiments in the global environment.
“Domestic demand remains resilient despite negative developments overseas,” Mier executive director Zakariah Abdul Rashid said in a Bloomberg report.
The research institute raised its gross domestic product (GDP) forecast for 2012 to 4.9% from 4.2% previously on the continuous domestic resilience.
Its growth forecasts are in line with the Government's estimate last month of GDP expansion as much as 5% in 2012 and between 4.5% and 5.5% next year.
As indicated in Mier's Consumer Sentiments Index (CSI), consumer confidence was still holding up and was expected to remain likewise in the future.
CSI added 3.4 points to 118.3 points at the end of Q3, against a quarter ago.
However, business conditions and confidence in the manufacturing sector has deteriorated. According to Mier's Business Conditions Index (BCI), the confidence in the sector may dwindle further. BSI fell 15.5 points quarter-on-quarter to 96 points, just 4 points below the 100-point neutral level.
“On balance, taking into account the results of Mier surveys and the fact that domestic demand remains resilient despite negative developments overseas, we are upgrading our 2012 and 2013 growth forecast for the Malaysian economy to 4.9% and 5.4% respectively,” Mier reaffirmed.
“GDP momentum likely peaked in Q2, with year-on-year growth likely to slow on destocking in manufacturing and E&E (electrical and electronic) picking up in 1H13 (first half of 2013),” Citigroup Inc senior economist Kit Wei Zheng said in a report
While Kit expects domestic consumption to moderate, he said the investment upturn should remain sustainable given the “long pipeline” of Mass Rapid Transit and oil and gas projects approved by the Government, inflow of more investment from Japan, coupled with rising interest in Iskandar Malaysia.
Mier said the current monetary easing in the United States could likely result in higher inflationary pressures. However, it added that the central bank was likely to keep the benchmark interest rate at 3% for the remainder of the year.
Kit said while inflation has troughed, it would normalise in 2013 as measured subsidy rationalisation resumes post elections. “Our base case is for rates to stay on hold for an extended period, but with rates deemed slightly below neutral, risks are biased towards a hike, especially if demand-led inflation or financial imbalances resurface,” Kit said.
He added that while numerous delays in the 13th general election, he did not expect the electoral outcome to affect economic developments significantly. This is given the “lower incidence of politically connected projects, and the generally pragmatic, pro-business policies, even those of the opposition”, he said.
On a separate note, Zakariah expects the ringgit to “slowly appreciate” to the May 2 rate of RM3.02 against the dollar by year-end. The ringgit added 0.0018 to 3.0373 per dollar at 5pm yesterday.