Monday, December 5, 2011

Malaysia's growth to dip slightly in 2012, says ICAEW

KUALA LUMPUR (Dec 5): Malaysia's annual growth is expected to dip slightly in 2012 to 4.3% but will rebound strong to 5.6% in 2013 according to the Institute of Chartered Accountants in England and Wales (ICAEW)''Quarterly Economic Insight Report.

In a report entitled Economic Insight: South East Asia released on Monday, ICAEW said that though well-diversified, Malaysia's economy was highly sensitive to global demand, demonstrated by swings of over eight percentage points in annual GDP growth during recessions.

It said Malaysia was a microcosm of Asean, combining nearly the entire range of economic activities found in the region, including resources, financial services and a highly developed electronics industry.

With more than one in five ringgit worth of goods going to China according to the latest IMF data, the Asian giant has become the largest export market for Malaysia, it said.

'This is opening fresh opportunities for Malaysian businesses while traditional customers from Europe and the US struggle with structural problems that will limit economic growth,' said Douglas McWilliams, ICAEW chief economic advisor and chief executive, Centre for Economics and Business Research.

The Asian Development Bank estimates that 64% of the Malaysian population will have joined the middle class by the end of the decade, and this evolution is evident in the increase in domestic consumption, the report added.

Meanwhile, ICAEW regional director for Southeast Asia Mark Billington said healthy growth in Malaysia was expected to fuel inflation despite falling commodity prices, particularly with the proposed introduction of a value-added tax and a reduction in food and fuel subsidies in the country.

'However when we look ahead, we expect a rising middle class to temper the variability of external conditions. Rising incomes will allow for more inward-focused industrial investments with a growing share of service sector output.

This refocusing of the economy towards Asia and a more stable domestic demand should facilitate the gradual move to high income status,' said Billington.

The report forecast that the US would avoid a recession but will take a long time to return to a sustained high economic growth.

It said the US housing bust has also indirectly influenced the Eurozone sovereign debt crisis - exposing weak economies which previously sheltered behind the solid euro.

Although the troubles in Europe are expected to have some effect on the ASEAN region, it should not derail the train of prosperity, it said.

"We believe that ASEAN should be able to keep growing relatively undistrubed due to the strength of its domestic demand and growing economic integration, and GDP growth will pick up in 2012, driven by Indonesia which makes up 40% of regional output," said McWilliams.

The report undertakes a quarterly review of South East Asian economies, with a focus on the six largest countries; Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

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