World Bank expects 5% GDP growth next year

KUALA LUMPUR: Malaysia’s GDP is expected to grow by 5.1% this year, and will marginally moderate to 5% next year provided there are no significant disruptions to the world economy, said a visiting World Bank economist.

“The bigger risk is of something disruptive happening. What’s happening in Europe and the US will eventually be resolved but both need to address structural reforms. In short, we don’t expect another Lehman Brothers scenario moving forward,” said Frederico Gil Sander in a recent interview with The Edge Financial Daily in conjunction with the release of the Malaysia Economic Monitor.

“Our view is that the EU and the US are faced with two kinds of policy cliffs. The most viable scenario is that  policymakers get closer to the cliff, see the abyss, get scared, then walk back and do whatever they need to do to avoid falling off the cliff,” he said.

Although these major economies will not “purposely fall off the cliff”, Sander said, they will keep coming closer to it with no meaningful long-term solution to the problems at hand. “We’re looking at these scenarios eventually getting resolved, but a lot of structural reforms still need to be addressed and all this will take some time,” he said.

The report released yesterday says Malaysia is expected to weather the weak global environment largely due to the strong influx of investments, efficient implementation of investment projects, strong fiscal policy and private consumption and a low likelihood of commodity prices declining significantly in 2013.

Should a new shock disrupt this scenario, exports would contract and commodity prices will fall.

Sander says the bigger risk to Malaysia's

economy is that something disruptive

happens/ The problems is the US and Europe

will eventually be resolved.

The report noted that strengthening and accelerating structural reforms is the key to ensuring positive growth momentum continues into the medium term.

Exports are projected to grow in real terms by 0.9% in 2012 and accelerate to 3.6% in 2013. This is still low compared with 4.2% in 2011 and 7.6% pre-crisis, although it is in line with global trade volume trends.

The country’s position as an open economy has largely been affected by weaknesses of the two major economies in the past few years, which in turn have impacted exports. But a more decisive recovery in growth rates in Malaysia’s major trading partners like China could bring upside risks to export forecasts in the second half of next year, it said.

Inflation could go up to 3% next year from an average of 2% this year, as the government resumes its subsidy rationalisation plan after the general election and the introduction of the minimum wage.

The report also stressed the importance of promoting the role of women in the labour market.

The number of working age women employed or those looking for employment in Malaysia is the lowest in the region and compared with countries with similar income levels. A recent study shows that Malaysia could experience a 23% increase in output per capita as a result of eliminating gender bias in the labour markets, it said.

Among measures the World Bank recommends is for companies to offer more flexible working hours for women, expand  childcare options and provide incentives for women to enter non-traditional fields of study.

“The government has put in place a number of helpful policy initiatives to leverage women’s talent but additional policy options can also be explored ... to enable Malaysian women to fully contribute to the country’s efforts to become a high-income, inclusive, and sustainable economy,” it said.

This article first appeared in The Edge Financial Daily, on Nov 30, 2012.

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