KUALA LUMPUR: The outlook for the year is brighter than in 2009, though the global economic recovery is still fragile, said RAM Rating Services Bhd.

“2010 will not be a year without challenges and risks, but prospects are more encouraging than a year ago.

“RAM forecasts a 4.9% GDP expansion for Malaysia in 2010, underpinned by positive growth for all broad industry categories, including agriculture, mining, construction, manufacturing and services,” RAM CEO Liza Mohd Noor said.

She was speaking to reporters at a briefing following RAM’s Investor Breakfast Meet 2010 here yesterday.

RAM group chief economist Yeah Kim Leng said while the country had braced for a pronounced slowdown last year, this turned out to be a “hard landing” with the current recovery momentum gaining pace.

“The theme we see this year is a positioning for a growth pick-up in the corporate sector,” he said.

However, he said after last year’s massive inventory run-down, re-stocking would contribute to higher production this year, but self-sustaining growth would have to come from private sector-led growth.

“Consumer and investor confidence remains a short-term key factor while investment and productivity increases must occur to enable high and sustained economic growth over the medium-to-long-term horizon.”

He said this year, growth here would be propped up by local and improving external demand, especially from within the region, as growth in the G3 countries were expected to remain weak and uneven.

The local economy should resume modest growth this year with an upward bias if public sector reform and transformation policies further strengthened consumer and investor confidence and trigger a surge in domestic and foreign direct investment, he said.

Yeah said RAM expected consumer spending to grow between 4% and 5% this year, representing half of trend growth, due to a gradual pick-up in consumer and investor confidence, aided by supportive monetary and fiscal policies.

He also said Malaysia was in a strong position to capitalise from trade and investment opportunities arising from regional integration and trade agreements.

Of other economic indicators, he said the interest rate was expected to rise by another 50-70 basis points this year, to between 2.75% and 3% by year-end, while inflation was expected to remain benign at 2.5%.

He said this inflation rate was still moderate and below trend, and would likely be cost-push rather than demand-pull, adding however, should the government pushed through with raising the minimum wage, the country could see some wage-push inflation.

He said the ringgit was expected to strengthen to between RM3.20 and RM3.30 to the US dollar by year-end, supported by better growth, high current account surplus and international reserves, positive interest rate differentials and low inflation.

He said the country could “cope” with the government’s targeted 5.1% budget deficit this year, but added that it was important for the economy to shift to private sector-led growth.

“The government debt level of around 50% of GDP last year, which grew from 40% due to fiscal stimulus actually pales in comparison to AAA-AA rated countries. The rule of thumb for government debt is around 60% of GDP, so we are able to sustain a higher deficit if we need to,” he said.


This article appeared in The Edge Financial Daily, March 10, 2010.