Steady growth expected
But overseas developments will determine pace of growth this year
KUALA LUMPUR: Growth for 2012 will moderate to between 4% and 5% after expanding by 5.1% last year but Bank Negara feels the steady pace of growth will largely depend on external developments.
Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz said domestic demand, which had been the driver of economic growth in recent years, would remain strong, growing in excess of 6% and where full year growth would come in largely depend on how the global economy performed.
She said the global environment remained challenging but there have been slivers of encouraging news of late.
“We have seen improvements in the United States and also the resolution of the debt issues in Europe has resulted in more stabilised financial markets.
“Should these positive trends continue, growth will be at the upper end of the range.
“However, if it takes a turn for the worst then it will be closer to the lower end of the range,” said the central bank governor during a briefing on the release of the Bank Negara 2011 annual report yesterday.
She said the country was focusing on building its capabilities to deal with these external developments and ensure they did not destabilise the financial system or the economy.
“Our reports show basically our financial system remains highly resilient and our domestic demand also has remained resilient and we expect consumption, investment and the government - which are the three major components of domestic demand - to remain strongly positive on the economy,” she said.
With the Government deficit projected at 4.7% of GDP in 2012 and national debt now at 54.8% of GDP, Zeti said the Government was aware of the situation and was working towards reducing its indebtedness.
She said the Government was putting together a team and that Bank Negara was part of the team to look at the effective management of the debt and to reduce the level of government indebtedness.
“The fact is that the Government does not have any significant external debt. It’s only 2% of GDP,” she said.
She said the fiscal deficit has increased over the past few years arising from the stimulus packages that were introduced.
Those stimulus packages were largely to prevent the economy from sliding to a significantly slower growth during the global financial crisis in 2008/2009.
“This was a global phenomenon where all governments came out with fiscal stimulus,” she said.
“Generally the Government plans for the private sector to drive growth and the Government will gradually reduce its role in the economy.
“Its role will be to provide the enabling environment for the private sector.
“If we look at the investment climate for investors, it has improved tremendously,” Zeti said.
She also pointed out that there was no legal ceiling to the Government’s borrowing, saying the ceiling was a misperception.
Commenting on the proposed minimum wage set tobeannounced, Zeti said there would be no significant impact on the economy and inflation.
“It will have a significant impact for the workforce and it will be positive for them (the workers),” she said.
On promoting the usage of electronic payments, Zeti said cheque payments were subsidised by the central bank as it was costly to clear cheques.
She said it cost RM3 to clear each cheque and that none of the cost was passed onto the user.
She said banks had previously not cut the cost of electronic payments as they did not have the volume.
“Right now we are encouraged by the increased volume of business.
“As we progress forward, the cost of electronic payment will decline,” Zeti said.
Meanwhile, Bank Negara announced that effective yesterday its real-time electronic transfer of funds and settlement system (Rentas) would be extended to realtime gross settlement services to include China’s renminbi.
“It’s important because China has become our largest trading partner.
“However, the next phase is to introduce the clearing of the US dollar,” she said.
The renminbi settlement services via Rentas covers real time interbank funds transfer, real time securities settlement services and scriptless depository security for all unlisted debt instruments in addition to provide a safe and efficient clearing settlement platform to provide trade and investment flows in renminbi.
“The purpose of providing the service is to promote the use of renminbi as a currency for trade settlements and therefore enhance financial stability by eliminating settlement risk and to facilitate renminbi security issuance out of our market,” she said.
This renminbi settlement service complements various regional initiatives already in place that fosters greater financial integration.
Bank of China (M) Bhd has been appointed as the onshore settlement institution for the renminbi settlement system.
THE economy is projected to grow by 4% to 5% this year, with domestic demand remaining the anchor of growth as it has been over the past few years.
Following the strong expansion in 2011, the growth of both private consumption and investment is projected to soften in 2012, as both income and capital expenditure in the external-related sectors of the economy are affected by the slower global growth.
Several risks, however, remain. These risks include a deterioration in the eurozone sovereign debt crisis, and much slower growth in malaysia’s major trading partners. Should growth in the advanced economies turn out to be stronger than expected, there is some upside potential to domestic growth this year.
Measures contained in Budget 2012 will nonetheless provide support to private consumption, which includes the one-off financial assistance to low and middle-income groups and the higher increment of public sector wages.
Domestic demand will continue to be the main driver of growth, with the rate of expansion remaining resilient at 6.6%. The weaker global growth outlook is likely to affect both income and capital expenditure in the external-related sectors of the economy, thus constraining the overall momentum in private consumption and investment.
The slight moderation of consumer expenditure is mainly attributed to moderating income in the private sector. The expected moderation of rubber and crude palm oil prices during the year may also adversely affect the incomes of smallholders.
The higher salary increment for the civil servants and the temporary income support initiatives that were announced in Budget 2012 will provide support to private consumption.
Private investment will be supported by continued investment by domestic-oriented industries and the ongoing implementation of projects under the Economic Transformation Programme.
Despite the large amount of investment approved in 2010 and 2011, some companies, especially in the export sector, can be expected to delay their investment plans due to the increased uncertainty about global prospects. Some capital spending projects, nevertheless, will continue, especially in the resource-based industries and new growth areas encompassing renewable energy and advanced electrical and electronics products.
The public sector will remain supportive of growth this year, with higher capital expenditure by both the Federal Government and the non-financial public enterprises.
The Government’s fiscal deficit is projected to moderate to 4.7% of gross domestic product in 2012 from 5% last year.
On the supply side, most sectors will continue to expand this year. Slower growth in global demand may adversely affect export-oriented industries in the manufacturing sector as well as trade-related industries in the services sector.
The performance of domestic-oriented industries, on the other hand, is expected to remain firm, benefiting from resilient domestic demand conditions. The manufacturing sector is expected to grow by 3.9% from 4.5% last year.
The services sector is projected to continue to drive growth this year. Growth, which is projected at 5.1% compared with 6.8% in 2011, will be supported by consumer-related subsectors, which is likely to cushion the effects of slower trade-related activity during the year.
The construction sector is projected to record a stronger growth with a projected rate of 6.6% compared with 3.5% in 2011, supported by the implementation of major infrastructure projects and the Special Stimulus Package.
Growth in the mining sector is also expected to strengthen to 0.6% from a contraction of 5.7% last year.
However, the agriculture sector is likely to register a more moderate growth of 3.8% from 5.6% in 2011 mostly on account of lower growth of both palm oil and natural rubber following the strong performance seen last year.
Headline inflation is expected to moderate in 2012, averaging between 2.5% and 3.0%.
The current account surplus is projected to remain large at Rm109.5bil or 12.2% of gross national income.