IMF sees 4.6pc growth next year
BRIGHT OUTLOOK: Malaysia urged to deepen capital markets
THE International Monetary Fund (IMF) in its October World Economic Outlook, has projected Malaysia to grow 4.3 per cent this year and 4.6 per cent next year.
The growth prospects for Malaysia as an upper middle-income economy remained bright, IMF added.
“Even within the cohort of upper middle-income countries, the growth performance has been higher,” said Chikahisa Sumi, director of the IMF regional office for Asia and Pacific.
Speaking at the National Economic Outlook Conference 2017-2018 organised by the Malaysian Institute of Economic Research (Mier) yesterday, Sumi said the average growth could fall as the country got richer.
Growth in the Asean-5 countries (Indonesia, Malaysia, the Philippines, Singapore and Thailand) accelerated in the second quarter with consumption and investment (private and public) remaining robust so far this year, partly offsetting weak export growth.
The IMF said regional financial conditions were increasingly determined by global factors such as the possible United States interest rate hike and risk aversion.
The IMF felt countries like Malaysia should look into deepening the capital markets so as to reduce the effects of the volatility.
“Funds are volatile as there is roundtripping in London and New York, where the fund managers are based.”
By capital markets deepening, Sumi said it did not mean the size of the market or foreign ownership.
“Malaysia and Indonesia have seen a rapid growth in size in the capital market, but we have not seen a diversity of investors.
“A deeper liquid market should have many types of investors, including insurance companies, pension funds, institutions and asset managers.
“We would like to see domestic life insurance companies or pension funds play a part as, by definition, their liability is lower and they can afford to invest, while foreign funds specialising in infrastructure can also stay through ups and downs in an economy.”
With rising concerns of the effects of globalisation, Sumi said the IMF had also conducted studies to find out why global trade had shrunk.
Two-thirds of the shrinkage, he said, was attributed to lower demand and lower business activities.
For example, if there was lower investments, capital would be lower while the import of goods would also fall.
“This explains the decline in trade due to trade policies and plateauing of global value chains.”
Over the past decade, intermediate goods were produced in various countries before they were assembled in the final market, but that form of outsourcing has been replaced by foreign direct investments.
China, which used to import goods from Japan and South Korea, have since “accumulated” the knowhow, while Japanese and South companies have also set up operations in China.
The Trans-Pacific Partnership agreement could reverse the slowing trade trend, but it would all depend on the United States, he added.