KL cuts 2003 growth forecast to 4.5%, eases forex rules
KL cuts 2003 growth forecast to 4.5%, eases forex rules
Eileen Ng, Agence France-Presse, Kuala Lumpur
Malaysia on Wednesday slashed its economic growth forecast for this year to 4.5 percent from 6.0-6.5 percent and announced the easing of foreign exchange rules to woo investors.
The central Bank Negara Malaysia, in its 2002 annual report, warned gross domestic product (GDP) growth could slide even lower if global economic uncertainties persist.
Bank Negara governor Zeti Akhtar Aziz said the 4.5 percent forecast, up slightly from 4.2 percent growth recorded last year, was in line with expectations in other Asian economies that the pace of growth last year would be sustained into 2003.
Growth was expected to be propped up by a recovery in private investment, which rebounded in the second half of last year after two straight years of decline. Private investment growth is forecast at 8.1 percent this year, she said.
Some pick-up in the global electronics industry, firm commodity prices and a further expansion in intra-regional trade were other favorable factors.
"The underlying trend is for the Malaysian economy to expand by 4.5 percent," Zeti said.
But she warned that GDP growth would be weaker than expected if the recovery in private investment failed to gain momentum.
Bank Negara said exchange control rules would be further eased as part of ongoing efforts since November to provide a conducive business environment and boost efficiency.
From April, a rule requiring non-resident controlled firms to get at least half of their loans from Malaysian-owned banks will be lifted.
Firms will have more freedom to sell foreign exchange forward contracts.
Exporters can retain more proceeds in their foreign currency accounts and need not report every transaction in excess of 100,000 ringgit. They need only submit quarterly and annual reports.
Economists said Malaysia's move to cut its growth forecast amid the U.S.-led war in Iraq was expected as a slowdown was already underway.
But they found the 8.1 percent growth forecast for private investment too bullish given the weak global economy and said further liberalization was necessary for Malaysia to cope with stiff competition from China and other regional economies.
"Malaysia faces an uphill battle to attract more foreign investment. It needs to do a lot more to open up the economy, open up sectors and cut tax rates," said Paul Schymyck, economist with Singapore-based IDEAglobal.
He urged the government to eventually dismantle its fixed exchange rate, pegged at 3.80 ringgit to the dollar since 1998.
A stimulus package, to be unveiled next month to shore up the economy, would be a shot-in-the-arm if it contained tax incentives and other steps to boost competitiveness rather than just government spending, he added.
Bank Negara said GDP growth in 2003 would remain driven by the domestic economy but the private sector would assume a more significant role.
Private consumption growth is expected to jump to 6.9 percent from 4.2 percent last year, but public consumption growth is seen falling to 3.1 percent from 13.8 percent. The expansion of public spending is seen slowing to 4.1 percent from 4.6 percent.
Manufacturing growth is expected to improve to five percent from 4.5 percent last year, with agriculture growing 1.5 percent, up from 0.3 percent.
The central bank said there was a general consensus that the electronics sector would improve in the second half of the year but export growth was expected to ease to 7.8 percent, from 10.6 percent last year.
Despite a recent hike in oil prices, Bank Negara said inflation was expected to moderate to 1.5 percent from 1.8 percent last year and unemployment is projected at 3.4 percent.