US stimulus cutback to weigh on Malaysia’s growth, warns finance group: KUALA LUMPUR, Sept 4 — Malaysia’s days of growth driven by US stimulus is set to end as the Federal Reserve winds down its stimulus programme, a leading accountancy and finance body warned today, at a time when Putrajaya is looking to expand the economy and reduce debt to appease ratings agencies. In its Economic Insight: South East Asia report released jointly with the Centre for Economics and Business Research (CEBR) today, the Institute of Chartered Accountants in England and Wales (ICAEW) warned of a reduced capital flows to ASEAN that will likely occur once the US central bank tapers its US$85 billion (RM280 billion) monthly bonds-buying scheme. “Both companies and individuals in Malaysia and the region have benefited from low interest rates, which have fuelled consumption and borrowing against future income,” ICAEW Economic Advisor and Cebr’s Head of Macroeconomics, Charles Davis, said in a statement here. “We are likely to see this gradually change as the US economy recovers and the Fed looks for an exit strategy from its very loose monetary policy stance,” he added, referring to the US Federal Reserve. Davis predicted that the region will now have to adapt to a slow growth period when loans are harder to get, and the cost of borrowing money increases. This follows a warning by global ratings agency Fitch Ratings yesterday that a slowdown in growth could hamper Putrajaya’s bid to cut its current account deficit by up to 3 per cent of the gross domestic product (GDP) by 2015. Putrajaya had in Monday announced a cut in fuel subsidy to consolidate its fiscal position, especially after Fitch revised Malaysia’s sovereign debt outlook from “Stable” to “Negative” last month. Fitch commented yesterday, however, that Putrajaya’s measures to lower subsidies are too small to alter the negative outlook on Malaysia’s A- sovereign rating. ICAEW assured ASEAN members today that tighter US monetary policy was unlikely to cause a repeat of the Asian Financial Crisis, but said it would create a more uncertain business environment. It noted that some countries like Indonesia have reacted strongly to depreciation by increasing its interest rates, a move which brings with it a risk of slower growth in the coming months. Since May 9, the ringgit has fallen 8.8 per cent against the US dollar as global investors fled emerging markets, sinking the currency to a three-year low against the greenback. Economists told The Malay Mail Online yesterday, however, that it is unlikely for Bank Negara Malaysia (BNM) to interfere with the interest rates in the near future, despite the rising inflation rate this year. The central bank previously said that it will not intervene unless trading of the ringgit becomes “disorderly”. ICAEW also warned of a slowdown in export and intra-ASEAN consumption caused by the sluggish economy of China, which is the bloc’s largest trading partner, and the effect it has on commodity prices. “Although inflation remains low, Malaysia is expected to suffer from both the Chinese slowdown and tapering of asset purchases in the US,” said Mark Billington, the Regional Director of ICAEW South East Asia. Billington predicted that this will cause Malaysia’s GDP growth to slow from 5.6 per cent in 2012 to 4.3 per cent in 2013 and 4.0 per cent in 2014. However, ICAEW expected that Malaysia’s economy will pick up again in 2015 as investor capital returns to take advantage of opportunities for growth. “Stable productivity growth and increasing household consumption should allow GDP growth to increase marginally to 4.1 per cent in 2015,” Billington added. In the light of the modest GDP growth for the last two quarters, BNM has revised its outlook for 2013’s GDP growth from 5.6 per cent to between 4.5 and 5 per cent. Average inflation has also increased to 1.8 per cent in the second quarter, up from 1.5 per cent in the previous quarter as Malaysia recorded its highest inflation rate in 14 months of 2 per cent in July. Malaysia’s fiscal deficit has already widened to RM14.9 billion, and runs a relatively high government debt of 53 per cent of GDP in addition to one of Asia’s highest household debt levels. dlvr.it/3wLlqB
Posted on: Fri, 06 Sep 2013 10:50:18 +0000
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