Malaysian economy seen to beat 2000 official forecast

Malaysian economy seen to beat 2000 official forecast

KUALA LUMPUR (Reuters): Malaysia's economy is expected to expand by more than the official five percent forecast in 2000, driven by exports and a pick up in domestic demand.

Deputy Finance Minister Shafie Mohd Salleh told a gathering of foreign institutional investors on Wednesday that fundamentals have strengthened at a better-than-expected pace and growth in 1999 also could be higher than the official forecast of 4.3 percent.

"Barring the emergence of any serious development on the external front, real GDP is forecast to grow at more than the five percent forecast when the budget was presented in October 1999," he said in a speech.

"Market analysts are, however, more bullish, and place this number at six percent or higher," he said.

The Malaysian government expects GDP to grow by 4.3 percent in 1999 and 5.0 percent in 2000.

Earlier on Wednesday, Chase Manhattan Bank forecast six percent GDP growth in 2000 and 6.7 percent in 2001.

A recent Reuters poll of 10 research houses forecast GDP to grow by 5.0 percent in 1999 and 5.7 percent in 2000.

Chase Manhattan, leading the investors on an Asian fact- finding trip, said Malaysia's economic rebound and ratings upgrade have helped spreads on sovereign and corporate bonds to tighten dramatically over equivalent U.S. Treasuries in the last year.

"The performance of Malaysian bonds last year was spectacular," said Gregory L. Batey, Chase's head of Asia fixed income research.

"Investors who bought Malaysian bonds last year were very happy," he added. The Malaysian component of Chase Asia Bond Index (CABI) returned 33.76 percent.

Telekom Malaysia returned 51.50 percent and Malaysia utility bonds returned 46.21 percent.

Chase officials said that strong fundamentals, potential ratings upgrades and scarcity value of Malaysian papers provided an excellent opportunity for more corporate dollar bond issues.

"The positive fundamentals limit the downside and makes it attractive for investors," Batey said.

Asked whether Malaysia should issue a fresh tranche of sovereign bonds to tap the favorable climate, Robert Fernandez, Chase's head of Asia Debt Capital Markets Fixed Income, said: "Time is definitely ripe. It is a question of sovereign's needs." Officials said the yield of Malaysia's sovereign bond, issued last year, was trading "neck and neck" with South Korea.

"That puts Malaysia in league with the most successful recovering economies after the Asian crisis," said Joyce Chang, managing director of international fixed income at Chase Securities Inc.

Chase said Malaysia's economy will be driven by exports and a rise in private spending. It forecast exports to grow by about 13 percent and the trade surplus to be above $16 billion in 2000.