Malaysia Business Forecast Report Q1 2014

Business Monitor International
October 29, 2013
45 Pages - SKU: BMI5144209
Countries covered: Malaysia

Malaysia Business Forecast Report Q1 2014

Core Views
Cooling external demand should continue to drag on the overalleconomy and we expect Malaysia's full-year real GDP growth willcome in relatively weak at just 4.6%, with the balance of risks slightlyskewed to the downside. However, resilient private consumptiongrowth, which came in at 7.2% y-o-y in Q213 and 7.5% in Q113,should help to keep domestic demand robust over the coming months.
We forecast Malaysia's fiscal deficit to rise from 4.5% in 2012 to4.9% in 2013, owing to the lack of progress on budgetary reformsto address the country's deteriorating fiscal position. We reiterateour view that any meaningful budgetary reforms will require thegovernment to introduce the GST bill at the upcoming budget announcementscheduled for October.
Despite mounting concerns that fuel price hikes implemented bythe Malaysian government in September could generate inflationarypressures over the coming months, we maintain our view that thecountry's medium-term outlook for consumer price inflation (CPI)will remain benign. We expect Bank Negara Malaysia to keep itspolicy rate on hold at 3.00% through 2013 before we see scope fora 25 basis points hike in 2014.
Major Forecast Changes
We have revised up our forecast for real GDP growth from 4.2% to4.6% in 2013 to reflect the better-than-expected economic data inrecent months.
Key Risks To Outlook
Malaysia's economic outlook remains vulnerable to external shocks.This is compounded by increased public spending on welfare subsidiesin recent years. We caution that the government's failure toaddress its fiscal imbalances after the general election risks triggeringa wave of downgrades by rating agencies on its debt. Such a scenariowould likely result in higher debt servicing costs as investors demandhigher yields, further complicating efforts to cut public spending.



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