Malaysia to see 5.7% GDP growth in 2008

The following statement was picked from The Edge Daily dated 21.9.2007 by Ellina Badri. Hopefully it will be on the track.



KUALA LUMPUR: The Malaysian economy is expected to grow at a rate of 5.7% next year, although it must face the key challenge of a weakening US economy.

At an economic briefing here yesterday, Standard Chartered Bank regional head of economic research, Southeast Asia, Cheung Tai Hui said the GDP growth rate was “respectable, above-trend and one of the faster growing rates in the region” even though it was lower than the government’s targeted 6% to 6.5%.

He said the economy was exposed to trends in the US — as exports to the country represented 20% of GDP in 2006/2007 — although domestic demand was seen to be strong enough to cushion the weakening US economy.

“Our view is that the US economy will weaken in the next 12 to 18 months as the three key pillars of the economy — the housing market, the stock market and the labour market — are seen to be weakening,” he said.

Cheung also said Malaysia’s headline growth remained steady, and the softening electrical and electronics (E&E) exports were expected to pick up moderately at the end of the year and early 2008 although the “biggest worry” concerning exports was that US capital spending would decelerate.

Additionally, he said while inflation concerns presented a further risk to the economy preventing the central bank from cutting interest rates, it did not pose a downside risk to growth.

With rising inflation — reflecting strong demand and higher wages — Standard Chartered has raised its 2008 inflation forecast to 2.5%, he said.

On the ringgit, Cheung said the currency was expected to strengthen to between RM3.40 and RM3.450 to the US dollar at the end of 2007, and further to RM3.30 at end-2008.

Malaysia’s current account surplus, which saw continued foreign currency inflows, coupled with sustained investor interest, would contribute to the strong currency, he said.

The current US$80 (RM280) per barrel oil price was also not seen as sustainable due to slowing global growth and prices were expected to fall, he added.