KUCHING: Despite rising inflationary expectations and a potentially higher interest rates environment, private investment is poised to chart strong double-digit growth this year.
The research arm of TA Securities Holdings Bhd (TA Research) in a report said real private investment has been growing double-digit for the past five years and reached RM40 billion in 2013.
Thus, TA Research expects the momentum for robust private investment to continue in 2014 and 2015 supported by the recovery of the global economy, rising foreign direct investment (FDI) inflows, improving business confidence and the acceleration of Economic Transformation Programme (ETP) projects to boost domestic capital expenditure spending especially in the oil and gas (O&G) sector.
TA Research observed that the prospects for FDI and domestic investment remained positive over the medium term.
The research firm highlighted earlier that domestic investment will benefit from higher rate for the implementation of ETP projects while FDI inflows will be supported by increased FDI momentum globally.
On the external front, TA Research noted the gradual improvement in macroeconomic conditions, supported further by recovering for corporate profits are expected to provide positive vibes for business confidence and FDI flows in the medium term.
Citing a finding from United Nations Conference on Trade and Development (UNCTAD), TA Research said FDI flows is expected to increase further to US$1.62 trillion in 2014, US$1.75 trillion in 2015 and US$1.85 trillion in 2016.
The research firm noted FDI inflows to developing economies is expected to remain high over the next three years with flat growth in 2014 before trending up in the next two years.
Locally, TA Research pointed out that private investment growth momentum will remain buoyant in the near future driven by sustained corporate profitability and positive business sentiment as well as high capacity utilisation.
The research firm explained that profitability is a major boost for business sentiment and incentive for investment and thus, contributes to the availability of internal and external financing.
Additionally, TA Research said as production output is still growing, manufacturers are expecting higher investment in new plant and equipment in the future.
The research firm observed the manufacturing sector has been growing steadily and is expected to maintain an uptrend movement.
TA Research noted the key drivers for investment in the manufacturing sector in 2014 thus far were chemical and chemical products which accounted for 34.6 per cent for investment approved by the Malaysian Investment Development Authority (MIDA) followed by basic metal products (16.3 per cent) and electronics and electrical products (15.2 per cent).
In spite of the favourable outlook, TA Research foresees several challenges faced by the country.
Those include the strength of the ringgit which could affect exporters, increased risk from the ending of the quantitative easing from the US Federal Reserve and credit rating as a result of higher interest rates which could raise the cost of funds available to businesses.
Hence, TA Research believed that private investment will still be on strong growth trajectory over the medium term albeit in an economic environment of increased risk and challenges.