RBS: Malaysia to grow 4.6pc this year on exports

KUALA LUMPUR, Feb 11 — Malaysia will maintain moderate growth this year despite household debt levels at 80 per cent of the country’s gross domestic product (GDP), the Royal Bank of Scotland (RBS) predicted today.

“Growth will be moderate, roughly the same or slightly better than last year, 4.6 per cent.

“The fiscal consolidation process may have an impact on growth, but remember, this is a very important development,” said Sanjay Mathurs, who is RBS managing director and economic research chief for Asia, excluding Japan.

He said that Malaysia’s debt-to-GDP ratio is currently at 55 per cent.

Mathur said that a higher contribution from net trade will help prop up growth, adding that the government is likely to tolerate a weaker ringgit to improve the terms of trade.

Since the end of the third quarter last year, the government has embarked on a round of subsidy cuts including a 10 per cent hike in petrol pump prices, and since January 1 this year, electricity prices went up by 15 per cent.

Mathur said countries in the region including Malaysia need to take drastic steps to get out of the middle-income trap, adding that the rationalisation of subsidies is unavoidable and there should be more investment in human capital.

The countries need more investment in human capital along with better governance, he said.

He added that the bank expects to see more fiscal austerity this year, which could lead to inflation to 3.5 per cent this year, up from 3.2 per cent in 2012.

Mathur however is cautiously optimistic about domestic consumption, citing the implementation of Malaysia’s minimum wage.

“When you have minimum wages being introduced, you would think that companies will hire fewer people.

“The reality is, it seems to us, foreign workers have now been replaced by local workers and there are more local workers including women who want to work.

RBS predicted that the ringgit may strengthen in the second half of the year.

“Things are more insulated here because we think there are a number of long-term players who have a lot of holding power.

“It may be a foreign central bank, it may be a foreign wealth fund,” he said, adding that the currency may end the year on par with last year’s rates.

RBS also expects interest rates to remain stable.