KUALA LUMPUR, May 10 — Malaysia is looking at slower growth as regional economies take a hit from the deterioration of the global economic environment particularly in Europe, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) said today.
The agency projected a growth rate for Malaysia of 4.5 per cent this year compared with 5.1 per cent last year and 7.2 per cent in 2010.
Mohamed Ariff said growth in Malaysia this year is expected to be driven by private consumption and commodity exports. — Picture by Choo Choy May
The slower growth could present a hurdle for Malaysia’s ambitions to reach high-income status by 2020 as this could be the second consecutive year that growth will come in below the six per cent average growth prescribed by the Najib administration’s reform initiatives such as the New Economic Model (NEM) and Economic Transformation Programme (ETP).
The Asia-Pacific as a whole meanwhile is expected to see its growth moderate further to 6.5 per cent in 2012 compared with 7 per cent in 2011 due to a slackening of demand for exports in advanced economies.
ESCAP noted that the Malaysia continued to incur fiscal deficits, although reduced, due to wide-ranging subsidies and the delayed introduction of the broad-based goods and services tax (GST).
Prof Datuk Mohamed Ariff Abdul Kareem, professor with the Global University of Islamic Finance, said that growth this year was expected to be driven by private consumption and commodity exports.
“Expect public expenditure to decline over deficit concerns,” he said at the launch of the ESCAP Economic and Social Survey 2012.
He noted that the US used to be Malaysia’s top trading partner but was now only the fifth largest during the first two months of the year while Singapore was now the country’s top trading partner and China had climbed from 14th to second place.
As part of reforms, subsidy spending was to have been rationalised but the exercise was suspended indefinitely last year over concerns it would increase inflationary pressure.
ESCAP noted that while subsidies for sugar and energy were reduced slightly in 2010, subsidies still accounted for about four per cent of GDP.
ESCAP economic affairs officer Oliver Paddison said countries in the region needed to rebalance their economies towards domestic consumption and strengthen regional co-operation to face economic challenges.
He added that high commodity prices had become a “new normal” and countries should get involved in a “green revolution” to boost food production to help bring down inflation in food prices.
ESCAP said the world had entered a second stage of the global financial crisis with a sharp deterioration in the economic conditions largely due to the Eurozone debt crisis and the uncertain US economy.
It estimated that a disorderly sovereign debt default in Europe or the breakup of the euro common currency region would result in a new crisis that could lead to a total export loss of US$390 billion (RM1,170 billion) over 2012-2013 and reduce Asia-Pacific growth by 1.3 per cent.
The agency noted however that despite the slowdown, the Asia-Pacific will remain the fastest growing region in the world and has begun acting as a growth pole for other developing regions such as South America and Africa.
By Lee Wei Lian
KUALA LUMPUR (May 10, 2012): Malaysia's economy is expected to grow by a slower 4.5 per cent this year due to weaker external demand, according to the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
This is in comparison to the 5.1 per cent in 2011 from 7.2 per cent in 2010. ESCAP said the fiscal deficit remained at around 5.6 per cent of the Gross Domestic Product (GDP) in 2011 after declining from seven per cent in 2009 to 5.6 per cent in 2010.
"This was largely due to wide ranging subsidies on the expenditure side and delayed introduction of the goods and services tax (GST) on the revenue side, which remains heavily reliant on oil revenue," it added.
International Centre for Education in Islamic Finance (ICEIF) Professor Emeritus Datuk Dr Mohamed Ariff Abdul Kareem said the local economy would be spurred by domestic demand. However, Mohamed Ariff said Malaysia’s budget deficit is a major concern.
"There are already signs that Malaysia's credit rating is under pressure with the risk of downgrading.
"There is a need to rein in expenditure and increase tax revenue," he added, at the launch and briefing of ESCAP's Economic and Social Survey of Asia and the Pacific 2012 here today. Mohamed Ariff said Malaysia's fiscal deficit at above three per cent is a concern.
"The large deficit is attributed to wide-ranging subsidies (four per cent of GDP) and heavy reliance on oil revenue (40 per cent). "The saving grace is that debt is largely domestic (less vulnerable to external shocks). But a debt is a debt," he added.
Meanwhile, ESCAP Economic Affairs Officer Dr Oliver Paddison said the Asia-Pacific region will experience slowing growth in 2012 amidst global turbulence.
He attributed this to spillovers of the euro zone turmoil, global oil price hikes, excess liquidity and volatile capital flows. "The key long-term challenge is high and volatile commodity prices," he added, at a media briefing, on the ESCAP survey.
Paddison said growth is forecast to moderate to 6.5 per cent in 2012 from seven per cent in 2011 in the Asia Pacific region, with downward pressure from subdued developed economies.
"Despite the slowdown, the region remains an anchor of stability and growth pole for the world economy," he added.
He said a major concern is the insufficient job creation in formal sector in developing countries with a high young unemployment with the young three times more likely to be unemployed.