KUCHING: While economic growth in Malaysia will likely soften in the near term, a strong economic recovery in the second half of 2012 (2H12) cannot be ruled out, which in turn could further stoke inflationary pressures.
Despite the higher base effect and falling growth dampening inflationary pressures, the sustained rise in commodity prices, particularly in crude oil remained a major concern this year, said AmResearch Sdn Bhd (AmResearch) senior economist Manokaran Mottain in a report yesterday.
On top of that, he also highlighted the concern of continued rise in food price inflation, largely due to supply disruptions and the potential withdrawal of more subsidies on fuel and other items in by the second half.
“However, we envisage inflation to likely slow to between 2.5 per cent and three per cent this year, and potentially creeping higher in 2H12 as economic activities rebound,” he added.
He believed the central bank would continue to maintain its pro-growth policy on the back of the anticipated slowdown in external demand.
This would be necessary in order to encourage a further expansion of domestic demand, along with an easier access to bank credit in order to fund the government’s Economic Transformation Programme (ETP).
“As such, given the expected level of gross domestic product (GDP) growth and the potential threat of rising inflation, we do not see the need for any rate cut in the quarters ahead. We expect the overnight policy rate to remain at the current level of three per cent throughout the year,” he pointed out.
To date, the ETP has had RM177.1 billion worth of investments and RM237 billion in Gross National Income (GNI) generation potential, along with an expected creation of 389,263 new jobs.
Mottain further pointed out that implementations of ETP projects were also expected to encourage growth across the board. An estimated 92 per cent of the RM1.4 trillion investments required for all projects would be funded by the private sector.
“Notwithstanding our belief that the Malaysian economy will likely remain fairly robust this year, we have included a worst-case scenario that presents the downside risks with Malaysian forecasted GDP growth of only four per cent,” he pointed out.
“However, we expect a rebound in 2H12 to between five per cent and six per cent, which would average out the annual growth to around five per cent this year.”