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Date [ 2014-02-27, 06:00 ]

Things have been rather smooth for the country and the question is, will this continue?

Whatever the situation, domestic demand is

(Kuala Lumpur=Koreanpress) RamaniRathir= An overview as 2014 moves to the end of its first quarter, reveals some interesting highlights and trends. The report here has been compiled from public documents and other sources.

There havebeena lot of announcements and statements made on the state of the Malaysian economy since last year. Mostly negative, it has been on a rising scale after hitting a low in the 1Q, Therefore the GDP is now expected to strengthen and expand by 5.4% in 2014, faster than the 4.5% to 5.0% GDP growth estimated for 2013. This would be due to resilient domestic demand, running in tandem with export recovery.

Domestic demand will most likely be driven by a new investment cycle, arising from the Government’s efforts to transform the economy as well as investments in the various economic corridors, Iskandar Malaysia being a case in point, and oil & gas projects. Providing the necessary economic fluidity would be the sustained growth in consumer spending.

The fiscal consolidation and the tightening measures announced in the 2014 Budget are expected to curb property speculation. Add to this the Central Bank’s move to rein in household debt and the scenario is set for a fall in domestic demand. If past records are taken, despite these curbs, domestic demand will somehow be robust and resilient.

Growth of consumer spending is expected to hold its own, given Malaysians’ tendency to have high savings. A stable jobmarket should also give to rising domestic spending.
An additional bonus is also Visit Malaysia Year (VSM) 2014 and which will bring in an influx of tourists. The Government’s financial aids, such as BRIM1, which already has disbursed monies(February 22nd) ranging from MYR200 to MYR650 will put more spending poweronto the man-on-the-street.

On the global front, although there are challenges ahead, it is believed that the world economy will record a stronger growth in 2014 and very likely lift the country’s exports in 2014. The damper here could be the US budget and debt limit issues which still remain unresolved and its Quantitative Easing tapering off, should be just a question of timing.

From a deficit of 4.0% of GDP in 2013,the Government’s target is 3.5% of GDP in 2014. Hovering in the background and with opposition from some quarters is the move to introduce the Goods and Services Tax in April 2015. The Government hopes to broaden its tax base and so narrow its budget deficit further.

The current account in the balance of payments is projected to record a smaller surplus of MYR20.1bn or 1.9% of Gross National Income in 2014. This could be due to import growth likely outpacing that of exports. The surplus, however, will continue to provide an underlying support to the ringgit, which is susceptible to fluctuations in the short term due to volatile capital flow.

Inflation is expected to expand in 2014-15, in anticipation of further fuel price hikes in 2014 and an implementation of the GST in April 2015. As a result, inflation is projected to range from 2.8~3.2% in 2014 and will likely accelerate to around 3.8~4.2% in 2015. This will likely prompt the Central Bank to raise its key policy rate at some point, in order to dampen rising inflation.

Malaysia is expected to weather most of the storms 2014 may whip up. The country’s prudent fiscal policies, a committed Government and a resilient population should take it through.


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