GDP growth target of 5.5% to 6% achievable, says economist

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KUALA LUMPUR: Malaysia’s gross domestic product (GDP) growth target of between 5.5% and 6% this year will still be achievable even if there is a slight slowdown in the second half of the year, said University of Nottingham Malaysia’s school of economics’ head, Dr Teo Wing Leong.

“Year-on-year, the growth rate in the first quarter of 2014 (1Q14) is 6.5%, while 2Q14 is 5.6%. So, even if there is slight slowdown in the second half, the target of between 5.5% and 6% is still achievable,” he told The Edge Financial Daily in an email reply.

However, Teo cautioned that the country’s economy is expected to moderate next year as the implementation of the goods and services tax (GST) next April is expected to slow consumption growth.

“The Asian Development Bank, for instance, forecast Malaysia’s GDP growth to be 5.7% in 2014, while the real GDP growth in 2015 is expected to slow down to 5.3%,” he said.

Last Friday, Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz announced that the country’s economy had expanded by 5.6% in 3Q14, 0.6 percentage points higher than in the previous year’s corresponding quarter of 5%, supported by private sector demand and continued growth in net export of goods and services. It was at 6.5% in 2Q14.

However, MIDF Research chief economist Maslynnawati Ahmad is concerned that the growth was largely driven by private consumption, which grew to 6.7% from 6.5% in 2Q14, while exports fell from 8.8% in 2Q14 to 2.8% in 3Q14.

Personal financing growth, which was at 5% in 2Q14, continued to moderate to 4.2% in 3Q14 as a result of the central bank’s macroprudential measures, said Zeti.

She expects the figure, which was averaging about 20% between 2010 and 2012, to continue to moderate next year.

“We expect personal financing [growth] to stabilise and not increase from 4.2% currently, even if the GST is going to be introduced next year. Consumers from the lower income group are being supported by income transferred to them. This will help their living expenditure,” Zeti told reporters in a media briefing last week.

As for the nation’s debt-to-GDP ratio, she said it has been gradually declining from 55% to 52.8% currently as a result of prudent fiscal measures taken.

“This is a very significant development. The direction is there and the same thing can be said with the country’s contingent liabilities. Many of the projects that have guarantees are considered to be viable projects, and there is continued assessment on their viability,” she said.

Teo said the decline in the debt-to-GDP ratio reflects the government’s effort to reduce its budget deficit from 3.9% of GDP in 2013 to 3.5% of GDP this year.

“With faster GDP growth this year, it is not surprising that the ratio of debt-to-GDP will decline. It is important for the government to continue to be fiscally prudent, especially given the recent decline in oil price, which will reduce the contribution of oil-related revenue to the government,” he added.

Going forward, BNM forecast the country’s economy to be between 5% and 6% next year.

“If there is moderation in exports, then the number will lean closer to 5% and if the export improves, then it should tend towards 6%,” said Zeti.

 

This article first appeared in The Edge Financial Daily, on November 17, 2014.