`No high growth for Malaysia for now'

`No high growth for Malaysia for now'

Eileen Ng, Agence France-Presse, Kuala Lumpur

The Malaysian economy is likely to grow only moderately over the next few years until it can sharpen its competitiveness, economists said Tuesday.

Sluggish foreign investment, uncertainties over political succession and slow corporate reforms cloud the country's growth prospects, the analysts told a conference here on Malaysia's strategic outlook.

They predicted growth of between 4.3 and 5.4 percent this year, compared to the official forecast of 6.0 to 6.5 percent.

K and N Kenanga research chief Seow Choong Liang said Malaysia was now in the middle phase of a long-term recovery characterised by low interest rates, mixed economic data, a volatile share market and disinterested investors.

Seow said Malaysia's economy would not return to its heyday of above eight percent growth before the 1997-98 Asian crisis until it improved its competitiveness.

Government policies had been "too accommodating", resulting in a lack of healthy competition to spur productivity growth which had averaged below one percent in the last decade.

"The government has been too kind. There are many monopolies and oligopolies in Malaysia which are operating profitably without having to compete," he said.

"Competition needs to be reintroduced and a market-oriented system needs to be returned in order for productivity to improve."

Seow told reporters later that he projected Malaysia's economy to grow between three and five percent over the next few years.

"I don't expect Malaysia's economy to grow more than five percent over the next three to four years until Malaysia can find its new niches and become more competitive," he added.

Morgan Stanley regional economist Daniel Lian noted that Malaysia's equity market had been sluggish in the past year, underperforming peers such as Thailand and Indonesia since 2001.

Lian told the conference local investors seemed to feel the pinch more acutely as rising unemployment and a lackluster asset market hit domestic confidence.

Foreign investment also showed no signs of recovering last year after a sharp decline in 2001 and there was a market perception that corporate restructuring had come to a standstill, he said.

Lian said the market was also jittery over Prime Minister Mahathir Mohamad's planned resignation in October due to his dominance and the relatively low profile of his successor and deputy Abdullah Ahmad Badawi.

"The market appears to be uncomfortable about the emergence of a new leadership as Mahathir has been at the helm for 20 years. Also, Abdullah has been hesitant to announce his market platform," he said.

"There is also a market perception that Mahathir will probably continue to exercise executive power, possibly reducing effectiveness of the new leadership."

Lian said a slump in foreign investment, slower export pricing power and relatively stagnant economies since the 1997-98 Asian crisis had led to increased economic tension among Southeast Asian countries.

These issues had to be addressed by the government before market confidence could be restored, he added.

The government's National Economic Action Council secretariat chief K. Govindan said the economy was fundamentally strong and he foresaw a better year in 2003.

But he said the country had to diversify its sources of growth, tap new export markets, expand its services sector and boost competitiveness and efficiency to sustain long term growth.