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Wednesday, November 27, 2013

GDP to grow 5%-5.5% next year: MIER


KUALA LUMPUR (Nov 27, 2013): Malaysia's gross domestic product (GDP) is expected to grow by 5% to 5.5% next year and 5.5% to 6% in 2015, the Malaysian Institute of Economic Research (MIER) said, driven by domestic demand.

The think-tank is maintaining its 2013 GDP forecast of 4.8%, driven by the services sector which contributes about 60% to GDP.

"Our forecast is contingent to the world forecast by the International Monetary Fund (IMF). According to IMF, Europe will be going out of recession next year… this will give us some energy to grow better," its executive director Dr Zakariah Abdul Rashid (pix) told reporters at the MIER National Economic Outlook Conference 2014-2015 yesterday.

"The Chinese economy is also moderating but we have already factored in the moderation of the Asian economy. On the whole, we (Malaysia) will improve in 2014 compared with 2013 but only by a small amount…this is only our initial forecast, we will review (the figures of the GDP) again when we enter 2014," he added.

Zakariah also sees domestic demand as main driver of growth next year, despite the improvement in external demand.
"External demand will not drive the growth but its contribution will improve. The main driver is still domestic demand. I personally feel that we have been asking them (domestic sector) to work very hard, especially households.

"But now we are shifting from private consumption to private investment. Therefore private investment will have to do a lot more work going forward in 2014. If you look at the growth rate of private investments, it is faster than growth rate of private consumption," he said.

Zakariah added that projects under the Economic Transformation Programme must continue and the government must have the energy to continue pushing these projects and the economy forward rather than placing too much burden on private consumption and households, which are limited by rising household debts.

"In the past, domestic demand drove the economy and we hope it will continue to do so. What limits it is household debt. Our household debt is rising despite Bank Negara Malaysia's (BNM) measures. This issue is not easy to address because it deals with household behaviour and it is not easy to change behaviour.

"Also in the past, we asked households to work hard. A substantial share of domestic demand is actually contributed by households and they have contributed quite well. But there was a price to pay and that is debt," he said.

Zakariah reckons that the country must work towards a level of salary that matches productivity and although the minimum wage was implemented this year, there were some hiccups and labour market reforms will take some time.

"The key word is labour market reform. Household debt is high because the labour market is not remunerated well. They (employers) ask them to work hard, but they are not paid well," he added.

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