Friday 29 Mar 2024
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KUALA LUMPUR (Dec 12): The International Monetary Fund (IMF) said Malaysia’s real gross domestic product (GDP) growth has surprised on the upside and is projected at 5.5%–6% percent for 2017, driven by domestic demand and robust exports, while inflation has increased on the back of higher oil prices and is projected at close to 4%.

In a statement on its website yesterday, the IMF said Malaysia’s fiscal policy should follow a gradual consolidation path prioritising adjustment through higher revenues, making room for increased pro-growth social spending.

It said the current accommodative monetary policy stance is appropriate, including the forward bias towards reduced accommodation.

The IMF’s Nada Choueiri said real GDP growth is projected at 5.0%–5.5% in 2018.

She said while the cyclical upturn will begin to normalise, momentum in activity is expected to remain strong in the first half of the year, supported by domestic demand and continued strength in global trade.

Choueiri said headline inflation is expected to decline to the 3.0%–3.5% range on lower impact from global oil prices.

“Risks to the near–term outlook are balanced. Strong global demand for electronics, which has benefited Malaysia’s exports, could last longer than anticipated, while downside risks include policy uncertainty in advanced economies and tighter global financial conditions.

“Going forward, striking the right balance in policies will be key,” she said.

Choueiri said the government’s planned pace of fiscal consolidation for 2017–18 is appropriate, and will help build buffers and maintain financial market confidence.

She explained that in the medium term, fiscal policy should follow a gradual consolidation path, and the composition of adjustment could be improved to make it more revenue based and to make room for the structural reforms and increased social spending for inclusive growth.

“Medium term fiscal targets should be better communicated,” she said.

Choueiri said the current accommodative monetary policy stance with a bias towards reduced accommodation is appropriate, given above–potential growth but still stable core inflation.

“The authorities should stand ready to raise the policy rate should leading indicators suggest the emergence of overheating pressures.

“Continued reliance on exchange rate flexibility and macroeconomic policy adjustments should be the first line of defense against capital flow shocks,” she said.

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