18/11/2014 (New Straits Times) - Malayan Banking Bhd (Maybank) has adjusted its growth forecasts for the economy this year and next year on the back of tapering growth in the third quarter.

It expects the economy to grow by six per cent this year and 5.2 per cent next year from its five per cent forecast previously.

Bank Negara Malaysia announced last Friday that the third quarter had posted a slower growth of 5.6 per cent.

The pace of economic growth will taper further in the fourth quarter, it said in a report yesterday, adding that the final quarter would likely see growth slowing to between 5.1 and 5.5 per cent year-on-year.

Domestic demand slowed between July and September, dragged by slower private as well as public investment.

External demand is the main drag during the period and Maybank expects it to further weaken in the fourth quarter.

The research house has trimmed its 2014-2015 growth forecasts for both exports and imports of goods and services in view of the weak global economic growth and commodity prices.

Net external demand will likely shrink by 3.8 per cent from 26.4 per cent this year, with crude oil forecast to average US$85 (RM284.75) per barrel and crude palm oil to average RM2,400 per tonne next year.

“Private consumption and government consumption will be slower next year, reflecting the impact of budget consolidation and fiscal reforms.”

The government is on track to meet the full-year deficit spending to -3.5 per cent of gross domestic product (GDP), based on
the progress of the ongoing subsidy rationalisation.

The budget deficit in the January-September period shrank to RM21 billion, or 2.7 per cent of GDP, compared with RM24.8 billion deficit, or 3.4 per cent of GDP, in the same period last year.

The government targets the deficit to shrink to three per cent of GDP with the introduction of the Goods and Services Tax (GST) in April next year and more control over its operating expenditure.

The 1Malaysia People’s Aid (BR1M) programme, lower jobless rate, interest rate pause and GST offset package are set to mitigate impact of fiscal reforms on consumer spending.

Fiscal reform measures (subsidy rationalisation, GST) will cause inflation to accelerate further to 4.5-5.0 per cent next year.

The strong job market condition, given the sub-three per cent monthly unemployment rate since April, implies a tight labour market that is supportive of income growth.

Also, the GST offset package in terms of a one to three per cent personal income tax break and the increase in the BR1M amount further add to the positive income effect from the full-employment situation.

It also expects Bank Negara Malaysia to leave the Overnight Policy Rate stable for most of next year.

Maybank counts on investment to sustain the economic growth momentum.

“For the first six to seven months of the year, total amount of manufacturing and services investment approved by the Malaysian Investment Development Authority was RM71.1 billion, which is 60 per cent of the full-year target, suggesting the positive momentum since 2011 is continuing.”

Meanwhile, Maybank adjusted its 2014-2015 current account surplus forecasts to RM55.1 billion, or 5.2 per cent of GDP.