MIER lowers 2013 GDP growth forecast

Posted on 26 July 2013 - 05:37am

Eva Yeong

sunbiz@thesundaily.com

SUNpix: Carol Leong

KUALA LUMPUR (July 26, 2013): The Malaysian Institute of Economic Research (MIER) yesterday lowered its forecast for Malaysia's 2013 economic growth to 4.8% from 5.6% previously, and warned that growth may be lower if all the downside risks occur.

Executive director Dr Zakariah Abdul Rashid (pix) said these include a weaker pace of global growth, declining appetite for structural reforms and institutional improvements, an unsolved eurozone crisis, sovereign debt markets tension, fiscal contraction and hike in interest rates in the US, slowdown in China's economy, domestic demand fatigue and domestic political stability.

He said the downward revision was due to the country's lackluster performance in the first half of this year, which saw exports fall 3.3% year-on-year in the January-May period and decelerating private investment.

"We're very concerned with the recent developments in the external sector. Somehow our engine of growth in the external sector is getting slower," he told reporters at the think tank's Malaysian Economic Outlook: Second Quarter 2013 Update yesterday.

"Our exports fell quite substantially especially in April and May, with April registering the smallest trade balance. In May, exports increased only by a little, showing signs of decline," he added.

He also pointed to a lack of news about structural reforms in Malaysia's economy.

"It is a necessary condition to be a high income nation, but we're sleeping on it.

"It is tricky, balancing revenue and expenditure. How is the government going to increase revenue? The goods and services tax (GST) is one of them but now there (has been no news) about GST (lately)," he added.

Zakariah said the GST is probably still being discussed but there is no indication on when or how it would be implemented.

He also said that the government could try to reduce expenditure on subsidies and look at revenue leakage, with the subsidy rationalisation programme very likely to be implemented this year.

Meanwhile, MIER expects the economy to pick up in the second half of the year (H2) on improved and expanding business spending and projects gross domestic product (GDP) for 2014 to be within the range of 5%-5.5%.

"We hope June will be brighter. We expect (GDP growth in) Q2 to be more or less the same as Q1 or a little bit better, at between 4.1% and 4.3%.

"We also hope H2 will do better. We have confidence in H2 because (MIER's) business conditions index (BCI) showed that manufacturers are showing signs of expanding activities and good orders. Foreign investments also performed very well," he said.

The BCI bounced back by 21.6 percentage points to 114.2 in Q2 2013, the highest since the Q1 of 2012, after falling by 1.5 percentage points in Q1 2013.

Zakariah said Q3 2013 will see an improvement in the economy driven by higher production and local sales, export orders on the rise, employment to increase slightly and wage pressure expected to decrease.

Meanwhile, MIER expects inflation to be at 2.5% and unemployment to be at 3.2% this year, while the overnight policy rate is expected to remain at 3%.