Credit Suisse: Private investment to continue growing

Publication: NST

Date of publication: Jan 21, 2013

Section heading: Business Times

Page number: 002

KUALA LUMPUR: The recent strength in private investment in Malaysia is expected to continue after the general election as further benefits of the Economic Transformation Programme and Strategic Reform Initiatives come through, Credit Suisse said.

The current government is expected to return to power with a smaller majority, the firm added.

"On this basis and assuming Najib remains the Prime Minister, we think the ETP programme and its associated reforms will continue, boosting investment, lifting GDP growth," it said in a report focused on the first quarter outlook for 2013.

Credit Suisse has forecast a five per cent growth for 2013.

It described 2012 as an "excellent year" for Malaysia's economy, buoyed by strong domestic demand growth (offsetting export weakness), a rising private investment and low inflation averaging less than two per cent.

"Judging from one of the key metrics of macroeconomic performance we look at, the difference between real GDP growth and the inflation rate, Malaysia was the best performing country in Asia excluding China."

But it expects the government to be cautious in introducing fiscal consolidation measures such as hiking subsidised fuel prices or introducing broad-based goods and service tax (GST).

It expects the growth-inflation trade-off to remain supportive of the equity market in 2013, pointing to the potential for the market to catch up.

The growth-inflation trade-off measure rebounded from the local trough in 2011, staying in positive territory throughout last year.

The last time there was significant divergence between Malaysia's growth-inflation trade-off measure and the year-on-year growth in the country's equity index was right before the 2004 general election in March.

The gap was closed via a strong rebound in the latter to match the strong macroeconomic performance.

On the outlook for the rest of Asia, Credit Suisse said China is expected to disappoint with its regulations on shadow banking, the trust sector and local government funding will constrain public sector investment, while the private sector continues to struggle.

India's growth will be on the upside while a combination of strong GDP growth and structural fiscal improvements is likely to see the Philippines achieve investment grade status this year.

Likewise, it is optimistic that capex will continue to roar in Thailand in 2013, on the back of surging foreign investment applications, particularly from Japan, and the prospect of stronger government investment.

The Indonesian economy is overheating while its currency faces volatility, it added.

The depreciation of the Japanese yen is likely to impact Korea's exports the most.

In the case of Singapore it noted that inflation which has been outpacing real GDP growth for most of the past two years should unwind in 2013 as well as structural issues relating to the labour market and competitiveness.