KUALA LUMPUR: The Malaysian economy is expected to grow 5% in 2012 before expanding at a slower pace of 4.5% in 2013 on still-weak exports, according to UBS Investment Bank senior Asean economist Edward Teather.

This comes against slower growth in major advanced nations which are major importers, he said.

Malaysia’s economy grew 5.1% in 2011, slower than the 7.2% expansion seen in 2010.

Speaking to reporters during a conference call from Singapore yesterday morning, Teather who specialises in Asean economics said Malaysia may still have to contend with weaker GDP numbers in the second half of 2012 before things get better in the coming months.

Although UBS’ GDP growth forecast for 2013 is at a slower rate of 4.5%, Teather believes Malaysia stands to benefit from a “trade cycle which is bottoming,”  during the year. This, is turn, lends credence to expectations of a recovery in the country’s exports during the year, he said.

This more optimistic outlook has prompted UBS to price in a hike in the country’ benchmark interest rate or overnight policy rate (OPR) to 3.5% by end 2013 from the current 3% to combat an expected rise in inflation, according to Teather.

UBS expects domestic inflation,  measured by the consumer price index, to rise 2.9% in 2013 from the estimated growth of 1.7% in 2012 in anticipation of lower fuel subsidies post-general election, the economist said.

Teather said potential rate hikes by the central bank may attract capital inflows, resulting in demand for the ringgit. This leads to anticipation that the local currency will strengthen against the US dollar in 2013. He did not give a forecast.

The ringgit is currently traded at 3.0424 against the dollar, according to Bloomberg data.

Latest updates by Bank Negara Malaysia show that the nation’s GDP expanded 5.2% in the third quarter of 2012 from a year earlier. This is slower than the growth of 5.6% posted in the second quarter.

The central bank said in a statement that GDP growth had slowed on weaker exports, and the impact from slower external sales was mitigated by the growth in domestic demand.

BNM maintained the OPR at 3% during the third quarter of 2012. At the prevailing level of the benchmark rate, monetary conditions are deemed supportive of economic activity, BNM said.

UBS’ estimates compare with those by the Finance Ministry (MOF) which expects the Malaysian economy to register a stronger growth of between 4.5% and 5.5% in 2013 on firmer exports and private investment in the domestic landscape, according to the government’s latest economic report. MOF has estimated a growth of 4.5% to 5% in 2012.
The MOF indicated that the country’s GDP growth target assumes that the world economic backdrop will improve in the second half of 2013.

“The growth projection is premised upon the expectation of an improvement in the resolution of the debt crisis in the euro area and stronger growth momentum in the economies of Malaysia’s major trading partners,” the MOF said.

During 2013, Malaysia’s exports are anticipated to grow 3.9% on higher sales of commodity, besides electrical and electronic (E&E) products, according to the MOF. Meanwhile, imports are forecast to expand 5.2% on larger purchases of inputs for the domestic manufacturing sector, the MOF said.

In 2012, the MOF said growth in exports and imports is expected to come in at 2.4% and 6.5% respectively.


This article first appeared in The Edge Financial Daily, on Dec 5, 2012.