Analysts upbeat about Malaysia's economy

Analysts upbeat about Malaysia's economy

By M. Jegathesan

KUALA LUMPUR (AFP): Malaysia's economy has slowed to a healthier pace, according to the government's 1996 economic data, but analysts warned Sunday inflation and a weak trade balance were still major concerns.

"Fears of an overheating economy have dissipated," said Desmond Ch'ng, economist with South Johor Securities, a local broking firm.

But Ch'ng said inflationary pressures continued to persist. The sharp slow down in the construction sector to 9 percent last year from a robust 15 percent in 1995 was also a point of concern, he said, reacting to economic data released at the weekend.

Deputy Prime Minister Anwar Ibrahim said last Saturday Malaysia's growth slowed to a healthier and more stable pace of 8.2 percent last year, after a sizzling 9.5 percent growth in 1995.

Inflation rose to 3.5 percent last year from 3.4 percent in 1995. Anwar, who is also finance minister, said the slower economic growth had helped shrink the country's current account deficit to a more manageable 11 billion ringgit (4.4 billion ringgit) from a hefty 18.7 billion ringgit in 1995.

The 1996 data revealed that the economy is "healthier" than in 1995 with economic growth kept at a more manageable pace, Ch'ng said.

Other analysts were generally upbeat about Malaysia's economy, but warned that the government should not be complacent as concerns over rising inflation and a weak trade balance remained.

"Inflation was curtailed at 3.5 percent last year, but the real life situation for the lower income group could be higher. The price of basic food items like fish is rising," said Ramon Navaratnam, a former treasury official turned corporate figure.

The 8.2 percent growth rate last year had, nevertheless, put to rest fears that the Malaysian economy was beginning to decline, said Navaratnam, who is group corporate adviser to property group Sungei Way Group.

"I do not believe the stable growth rate happened unexpectedly. Policies were adopted to address the balance of payments problem," he added.

He said since late 1995, the government had discreetly slowed down its spending on mega projects to "cool the economy".

"Putrajaya, the new federal administrative township project is not moving that fast... the project is phased over a longer period," Navaratnam said.

Navaratnam suggested that the federal government find ways to make the states provide more land for food production so that prices of basic food items could remain stable.

"The private sector has to be given incentives to indulge is food cultivation so that the import bill for food could be reduced," he added.

South Johor's Ch'ng predicted the trade deficit may widen in 1997 as imports of capital goods would continue to be high. With imports expected to outpace exports, the trade deficit would remain high and put pressure on the current account.

The current account could widen to 13 billion ringgit this year, from 11 billion ringgit last year, Desmond said, forecasting growth to be sustained at 8.2 percent this year. The economy has been growing at above 8 percent a year since 1987.

"The outlook for 1997 is bright. We will enjoy the 10th year of sustainable economic growth but we cannot rest on our laurels as lingering concerns persist," Desmond said.