Thursday July 5, 2012
M'sian domestic demand expected to slowdow in Q2
Report says downtrend is in line with poor growth globally
PETALING JAYA: Domestic demand is expected to slow down to 7.4% in the second quarter of this year compared with 10.4% in the final quarter of 2011.
Alliance Investment Bank Bhd chief economist Manokaran Mottain said in a report that the downtrend in domestic demand was in line with the poor growth in global demand, particularly in regard to trade-related and investment activities.
“During the quarter, private consumption is expected to rise further, albeit at a slower pace of 6.5%, still benefiting from the many Government initiatives announced during the last budget and implemented in the first half of this year.
“These include the upward revision of public sector wages and the one-off financial assistance to the low and middle-income groups,” he said in a report yesterday.
Manokaran expects private investments to continue growing in the current quarter but at a slower pace of 12%, supported by domestic-oriented industries and the ongoing implementation of projects under the Economic Transformation Programme (ETP).
“Public sector investments and expenditure will remain supportive of growth this year, with higher capital expenditure by the Government and non-financial public enterprises,” he said, adding that he was turning cautiously optimistic about the domestic economic recovery.
“In this regard, we are now projecting the real gross domestic product (GDP) growth to moderate further to 4% in the second quarter of 2012 from 4.7% in the first quarter.”
In line with the volatile external conditions resulting from the eurozone debt crisis, the continued correction in commodity prices and weaker-than-expected public spending, Alliance Research is projecting slower GDP growth of 4.2% this year, decelerating from 5.1% last year.
“While the projected GDP growth of 4.2% is based on the assumptions of a global economic moderation with some resolution to the debt crisis (with Greece remaining in the union) as well as timely and full implementation of measures announced in the 2012 Budget and ETP, we have taken note of several downside risks to growth.
“These include a further deterioration in global investor confidence, the increasing likelihood of a prolonged eurozone debt crisis as well as a steeper slowdown experienced in the larger regional economies such as China.”
On the domestic economy, Manokaran said one of the key risks was the rising level of fiscal deficit (from the estimated 4.7% of GDP in 2012) due to the potential increase in subsidies as a result of high global crude oil prices and lower GDP growth.
In the worst-case scenario of a break-up of the eurozone, Manokaran said he foresaw the global economy slipping into a recession as seen in 2008 to 2009, with export demand shrinking significantly and affecting all export-oriented economies, including Malaysia.
“In the case of Malaysia, we recognise the Government's policy flexibility on the monetary as well fiscal fronts. We reckon the central bank may likely cut OPR (overnight policy rate) by as much as 25 to 50 basis points as a first policy response of a recession.”