By Stephanie Jacob
Bank Negara Malaysia (BNM) said it expects the Malaysian economy to see “steady growth of 4.5% to 5.5% in 2015, supported mainly by sustained expansion in domestic demand amid strong domestic fundamentals and a resilient export sector.”
In its 2014 Annual Report, the central bank said the external environment in 2015 is expected to remain challenging. Despite an overall improvement, BNM said downside risks remain to the global growth outlook given the continued weakness in some major economies.
BNM governor Zeti Akhtar Aziz said the uneven growth prospects may lead to divergence in the monetary policies of the major economies which would result in shifts in global liquidity and increased volatility in the international financial markets.
She said that for small and highly opened economies, such volatile capital flows have resulted in challenges in pursuing an independent monetary policy and given the openness of Malaysia’s economy and financial system, it is not insulated from these global developments.
Nonetheless Zeti added “the diversified structure of the Malaysian economy and our strengthened fundamentals have however enhanced the resilience of the economy and have placed us on a steady growth path.”
In its forecasts for 2015, BNM said private consumption is expected to grow 6% in 2015. Although the implementation of the goods and services tax in April 2015 and lower earnings in the commodity related sectors will affect spending it will be partially offset by higher household disposable incomes from lower fuel prices. Favourable labour market conditions and targeted cash transfers by the government are also expected to help drive consumption.
For first time in three years, growth in private investment will not be in the double digits as it is expected to only grow by 9% due to lower investments in the mining sector. BNM said it expects growth to be supported by new investments into the manufacturing and services sector in line with global recovery and the expansion in domestic demand.
Continued rationalisation in government spending will translate to slower growth in public consumption, as the government continues to spend less on supplies and services. Meanwhile public investment is expected to record positive growth in line with higher capital spending mostly by public enterprises and to a lesser extent, by the federal government.
BNM said in the wake of a strong performance in 2014, the growth of gross exports are expected moderate in line with lower commodity prices. Exports of manufactured products however are likely to grow at a stronger pace.
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nwhile gross imports growth are expected to be higher in 2015 amid continued growth in intermediate imports as exports orientated manufacturing grows. The trade balance is projected to be in surplus, but will likely contract to 2% to 3% of gross national income (GNI).
Headline inflation is forecast to be lower at 2% to 3% in line with the decline in global oil prices and food prices. BNM said “the more subdued external price pressures would also mitigate increases in the cost of imports stemming from the recent ringgit depreciation, thereby moderating imported inflation.” It added that while the implementation of GST will translate into higher prices for some goods and services, overall headline inflation is expected to be contained.
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