KUALA LUMPUR - The Malaysian central bank has
projected that the country's gross domestic product
(GDP) for this year will grow markedly based on the
robust outlook for the economy, but some economists are
not jumping to revise their figures upward, at least
until clearer signs toward improved growth warrant such
a move.
Bank Negara Malaysia, in an upbeat mood,
recently revised Malaysia's GDP growth for 2004 to
6.0-6.5 percent from 5.5-6.0 percent underpinned by
stronger domestic demand and reinforced by more
favorable external demand. A number of investment groups
also agree that Malaysia is headed toward higher growth
in the coming months, growth that could provide Malaysia
with one of the highest growth rates in Asia in 2004.
This growth is expected to be supported by
stronger performance in most sectors of the economy,
with the manufacturing sector, supported by a pick up in
the global electronics industry and improved domestic
demand, poised to remain the key engine of growth.
Manufacturing is expected to be followed by the services
industry, which contributes 56 percent to the country's
GDP.
The rising optimism in Malaysia has further
been bolstered by the landslide victory of the ruling
coalition in the recently concluded elections, which
should allow the government to push through a set of
economic policies put forth by the new prime minister,
Abdullah Badawi.
Confirming what was already
known In general, the announcement by Bank Negara
was not unexpected. In March, consensus forecasts for
Malaysia's 2004 GDP growth rose to 6.0 percent from 5.6
percent due to surprisingly strong export growth of 35
percent in December 2003, confirming that Malaysia is
now in line with the regional growth trend in exports.
The country's exports were lagging behind regional
exports growth prior to December.
Those
economists who concur with Bank Negara said that against
the backdrop of an improving global economy, the private
sector - particularly consumer spending - would
spearhead domestic economic growth as consumers would be
spending more amid the favorable economic conditions and
stable employment rates.
Additionally, the
low-interest-rate regime, which Abdullah's
administration intends to maintain, will help stimulate
private consumption. According to Bank Negara, private
consumption climbed 5.1 percent last year, while private
investments increased 1.1 percent after two consecutive
years of contraction.
The central bank forecasts
that private sector expenditure will increase by 8.7
percent this year against 4.3 percent in 2003. It
anticipates consumer spending will go up by 8.1 percent
compared with 5.1 percent last year, and private
investment will expand 11.5 percent this year compared
with 1.1 percent in the previous year.
According
to Mayban Securities, private-consumption growth is
expected to drive aggregate demand in the second quarter
of the year as public consumption takes a back seat
after the elections, a move that is already anticipated
by the central bank itself. Apart from the
low-interest-rate environment, the wealth effect from
the rally on the stock market is expected to kick in
during the second half of 2004.
Among the main
statistical and anecdotal evidence of the rebound in
private consumption is the country's improved business
confidence, a nascent sign of the recovery of private
investment, measured by the Malaysian Institute of
Economic Research's (MIER) Business Confidence Index.
Furthermore, MIER's Consumer Sentiment Index continued
to rise from the second quarter to the fourth quarter of
2003.
Some prefer to wait and
see Despite the rosy picture being envisaged,
some economists have chosen to take a wait-and-see
attitude, preferring not to embark on a round of number
crunching or make any hasty revisions.
"Pending
further economic data flows for the final two months of
the first quarter of this year, we prefer to maintain
our projection at 5.8 percent for now. By then, if
upcoming economic numbers corroborate with this official
upgrade in economic outlook, chances are we will raise
our 2004 GDP growth forecasts," said Azrul Azwar of Midf
Sisma.
In the absence of any surprises on the
upside in economic data flows so far, Azrul doesn't
foresee the GDP performance for the full year exceeding
the targeted growth of 5.8 percent as yet, adding that
despite the upbeat tone in growth patterns, there has
been no particular change there, he said, citing
unexciting figures on the industrial production front.
While remaining in the double-digit growth mode,
activities at factories, mines and utilities moderated
in February to the slowest pace since October.
Malaysia's February industrial production index, which
rose 11 percent from a year ago, did not greatly benefit
from the longer production month (2004 being a leap year
and the Chinese New Year falling in late January rather
than in February), in contrast to the impressive
performance of its regional peers: Singapore (38
percent), Taiwan (28 percent), China (23.2 percent),
South Korea (16.6 percent) and Thailand (16.3 percent).
Though industrial production index growth was
anticipated to fall from the previous month, in fact,
industrial activities cooled off even faster and fell
short of market expectations.
But distortions
aside, the January-February 2004 average industrial
output data results are impressive. During the two-month
period, as manufacturing output soared 17.1 percent, the
overall industrial production index jumped 14.6 percent,
a sharp rebound from the rate of increases of 6.4
percent and 6.5 percent, respectively, a year ago.
With figures such as these, Azrul also believes
that the Malaysian economy as a whole has not lost its
shine, as demand prospects are still looking up on both
the domestic and external fronts. Hence, there is no
excuse for industrial output to tail off significantly
into the future.
But nagging uncertainties
continue to plague some analysts. While they concur with
the official view that Malaysia will see
across-the-board expansion in all economic activities -
manufacturing (10.2 percent), services (5.2 percent) and
mining (5.5 percent) being the key drivers of growth -
and that this expansion is in sync with expectations of
a stronger global economy, an electronics upturn,
burgeoning intra-Asian trade, high commodity prices, the
return of the private sector - especially investment
activities - and so on, they nonetheless warned of
elements of downside risks.
An investment
analyst cautioned that the outlook beyond the third
quarter of this year remains a valid concern underpinned
by development in China. In view of possible growth in
China, that country's policymakers will attempt to
prevent overheating by curbing overinvestment in certain
"hot" sectors such as steel, cement, aluminum, real
estate, etc. The US economy also is expected to move
from an explosive 8.2 percent quarterly growth in the
third quarter of 2003 to about 4.5 percent throughout
most of this year.
Still, the general consensus
remains that Malaysia is on the road to higher growth in
the upcoming months, albeit with a few hiccups along the
way. Most, including foreign investment houses, agree
that growth will exceed that of the previous year's,
which reached 5.2 percent. Goldman Sachs has forecast
Malaysia's GDP growth in 2004 to hit 6.5 percent before
accelerating by 7.00 percent in 2005. Morgan Stanley,
meanwhile, revised upward its 2004 growth forecast for
Malaysia to 5.7 percent from the 5.0 percent it
previously projected, as the Malaysia economy has
continuously strengthened and is performing better than
expected.
If the official GDP forecasts for
countries in the region come through, Malaysia would
have one of the highest growth rates in Asia, exceeded
only by China (8.7 percent) and Thailand (7.7-8.1
percent). And that alone will certainly be a boost to
Malaysia's new leader, who already enjoys a keen
following.
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