Michael NG Sung Hee ,Malaysia Business Forecast Report
indicators continue to point to a slowdown in economic activity over the coming months, supporting our conviction that the Malaysian economy will miss the consensus forecast of 4.1% real GDP growth in 2012. We believe that as policymakers and investors re-evaluate their bullish expectations on the economy over the coming months, consensus estimates for growth will move closer to our forecast for a more subdued real GDP growth of 3.3% this year. Concerns about economic growth will continue to outweigh those of inflation, and as external conditions deteriorate, we continue to expect one final 25-basis point rate cut by the central bank to bring its policy rate from 3.00% to 2.75% by the end of 2012. Falling crude prices are adding to the Malaysian government's woes of addressing the country's deteriorating fiscal position. Fears that the Barisan Nasional coalition could lose more seats in parliament at the next general election have delayed plans to introduce the goods and services tax bill. Consequently, we expect the budget deficit to widen from 5.1% of GDP in 2011 to 6.3% of GDP this year. Major Forecast Changes We have revised down our forecast for headline consumer price inflation and now expect it to average a benign 1.7% in 2012, compared with a previous forecast of 2.5%. Key Risks To Outlook Malaysia's economic outlook remains vulnerable to external shocks. Weaker-than-expected growth in major economies such as China may have a negative impact on Malaysia's near-term growth prospects. Over the next few years, the success of government initiatives such as the Economic Transformation Programme will be crucial in sustaining the country's growth trajectory.