KUALA LUMPUR: In the wake of slowing global growth in 2012, domestic consumption is expected to prop up the local economy but it will not be entirely off the hook as economists still see some softening for the sector.
Weaker exports in the face of headwinds in developed economies are factors behind economists’ expectation of slower GDP growth for Malaysia in 2012.
CIMB’s chief economist Lee Heng Guie, in a report on the outlook for 2012, expects the country’s GDP growth to slow to 3.8% from the estimated 5% in 2011. He cited continuing weak global growth, pressured by volatile financial markets and Europe’s sovereign debt worries, a downturn in Malaysia’s export cycle, and an expected slowing of consumption and investments due to worries over economic conditions.
“With the export engine throwing a spanner in the works, the pressure is on domestic demand to keep the economy going, underpinned by both private spending and public investment.
“The key drivers of consumer spending are stable income and favourable employment prospects. But concerns over weaker growth prospects and volatile stock markets will bite into discretionary spending. Also, global uncertainties will throw a damper over investment activity,” he said in his report.
DBS Group Research in its 1Q 2012 outlook report said although the domestic economy is not expected to drop sharply, some moderation is expected.
The report pointed out that the labour market is showing signs of softening where unemployment rate has inched up a bit while job vacancies has fallen. It noted that the slowing growth has affected employment prospects.
“While we do not expect a severe dislocation in the labour market, it is reasonable to assume that companies and consumers alike may turn more cautious in the coming quarters until the growth outlook brightens again, most likely in 2H12,” said the report. It added that external uncertainties had taken a toll on investor confidence.
“Although investment grew by 6.1% in 3Q11, it was largely driven by public infrastructure investment,” it added.
DBS has forecast GDP growth to slow to 4.5% this year compared with an expected 5% in 2011.
RHB Research in a report on Dec 13 also said domestic demand, after picking up in 2011, will likely ease in 2012 on the back of softer growth in consumer spending and a slowdown in investment activities.
“Nevertheless, consumer spending will be supported by high savings, rising consumerism and favourable labour market conditions. Investments, on the other hand, will be underpinned by the progress in the implementation of the Economic Transformation Programme,” it added.
RHB Research expects economic growth to slow to 3.6% this year.
CIMB’s Lee also believes that unfavourable external environment and some easing in inflationary pressures will give Bank Negara Malaysia (BNM) the leeway to loosen monetary policy if domestic growth comes under threat.
“We think that a rate cut in 1Q12 is a possibility and maintain our end-2012 overnight policy rate (OPR) estimate of 2.5% to 2.75% (3% at end-2011),” he added.
DBS concurred with the view, saying it expects BNM to cut rates as early as end of the first quarter, by 25 basis points (bps) to 2.5%, to pre-empt downside risks to growth. Meanwhile, RHB Research said the central bank may ease monetary policy, cutting the OPR by 25 to 50 bps in the first half, if global economic conditions worsen.
This article appeared in The Edge Financial Daily, January 3, 2012.
Weaker exports in the face of headwinds in developed economies are factors behind economists’ expectation of slower GDP growth for Malaysia in 2012.
CIMB’s chief economist Lee Heng Guie, in a report on the outlook for 2012, expects the country’s GDP growth to slow to 3.8% from the estimated 5% in 2011. He cited continuing weak global growth, pressured by volatile financial markets and Europe’s sovereign debt worries, a downturn in Malaysia’s export cycle, and an expected slowing of consumption and investments due to worries over economic conditions.
“With the export engine throwing a spanner in the works, the pressure is on domestic demand to keep the economy going, underpinned by both private spending and public investment.
“The key drivers of consumer spending are stable income and favourable employment prospects. But concerns over weaker growth prospects and volatile stock markets will bite into discretionary spending. Also, global uncertainties will throw a damper over investment activity,” he said in his report.
DBS Group Research in its 1Q 2012 outlook report said although the domestic economy is not expected to drop sharply, some moderation is expected.
The report pointed out that the labour market is showing signs of softening where unemployment rate has inched up a bit while job vacancies has fallen. It noted that the slowing growth has affected employment prospects.
“While we do not expect a severe dislocation in the labour market, it is reasonable to assume that companies and consumers alike may turn more cautious in the coming quarters until the growth outlook brightens again, most likely in 2H12,” said the report. It added that external uncertainties had taken a toll on investor confidence.
“Although investment grew by 6.1% in 3Q11, it was largely driven by public infrastructure investment,” it added.
DBS has forecast GDP growth to slow to 4.5% this year compared with an expected 5% in 2011.
RHB Research in a report on Dec 13 also said domestic demand, after picking up in 2011, will likely ease in 2012 on the back of softer growth in consumer spending and a slowdown in investment activities.
“Nevertheless, consumer spending will be supported by high savings, rising consumerism and favourable labour market conditions. Investments, on the other hand, will be underpinned by the progress in the implementation of the Economic Transformation Programme,” it added.
RHB Research expects economic growth to slow to 3.6% this year.
CIMB’s Lee also believes that unfavourable external environment and some easing in inflationary pressures will give Bank Negara Malaysia (BNM) the leeway to loosen monetary policy if domestic growth comes under threat.
“We think that a rate cut in 1Q12 is a possibility and maintain our end-2012 overnight policy rate (OPR) estimate of 2.5% to 2.75% (3% at end-2011),” he added.
DBS concurred with the view, saying it expects BNM to cut rates as early as end of the first quarter, by 25 basis points (bps) to 2.5%, to pre-empt downside risks to growth. Meanwhile, RHB Research said the central bank may ease monetary policy, cutting the OPR by 25 to 50 bps in the first half, if global economic conditions worsen.
This article appeared in The Edge Financial Daily, January 3, 2012.
