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Economists disagree over OECD report

 | November 30, 2011

Some are cautious about using the word 'solid' with regard to the OECD report which forecasts Malaysia 's GDP to grow at a steady 5.3% and hit 5.6% by 2016.

PETALING JAYA: Economists have differed over a new economic report that predicted a “solid” growth performance for Malaysia over the next five years despite looming global uncertainties.

The report by the Organisation for Economic and Co-operative Development (OECD) has forecast Malaysia’s GDP to grow at a steady 5.3% and hit 5.6% by 2016.

This projection has placed Malaysia third among six Southeast Asian economies – Singapore, Thailand, The Phillipines, Vietnam and Indonesia – which are also primed for a solid growth through to 2016.

Indonesia has taken the lead with an expected 6.6% growth followed by Vietnam at 6.3%.

In assessing the report, Ratings Agency Malaysia’s chief economist Yeah Kim Leng noted that the projected growth falls within government and private sector estimates and is an affirmation of a shift in global growth prospects towards the Asian region.

“Part of this dynamism is due to increase in domestic demand-led growth in Asia,” he said. “And Malaysia’s forecasted GDP growth is very much in line with its middle to long-term estimates.”

For this prediction to be fulfilled however Yeah said Malaysia must sustain its domestic spending in both consumption and investment.

“Right now sustainability is present through favourable demographics, a growing middle-income group, supportive fiscal and monetary policies and a high savings rate,” he said.

Cheong Kee Cheok, a senior research fellow at the Faculty of Economics and Administration in University Malaya, however was less sanguine about Malaysia’s growth prospects.

While he tipped Malaysia’s growth to be at 5% this year, he added that he didn’t see how it could do better when gobal signs are “anything but rosy”.

Cheong also pointed out that the OECD report appeared to be outdated when compared to the World Bank’s Malaysian Economic Monitor which put the country’s growth at 4.9% for 2012.

“A 5.3% growth is optimistic and is still unlikely to help (prime minister) Najib (Tun Razak) achieve Vision 2020,” he stated.

Worsening crisis in Europe

Cheong’s caution is also fueled by the potentially worsening crisis in Europe which could take several years to recover and heavily impact growth performance in Southeast Asia.

“The US is on a recovery path but this recovery will also be slowed by Europe,” Cheong stated. “Even China’s fiscal space will be constrained for as long as the European mess remains unresolved.”

“The longer the European crisis lasts the less able Malaysia will be able to sustain growth compared to the other five economies. So certainly, I would be more cautious about using words like ‘solid’.”

Cheong added that Malaysia’s growth ranking below Indonesia and Vietnam is particularly telling in the area of foreign direct investment (FDI) .

“We have fallen way behind Vietnam and Indonesia in FDI,” he said. “Indonesia in particular is increasingly perceived by investors as more open and less hamstrung by all manner of rules and requirements.

“Vietnam, currently facing a levelling-off of FDI has been the darling of foreign investors for a while. Both countries have genuine low-cost labour base that is not dependent on imported labour unlike Malaysia,” he added.

Ong Kian Ming, a political analyst and economist with USCI University, meanwhile pointed out the futility in projecting a GDP growth beyond two years especially in the current context of global economic uncertainties.

According to him, Malaysia would be very fortunate to even make it to the 5% growth figure for 2011 when most economists projected growth of below 4% for next year.

“However if the structural changes under the Strategic Reform Initiatives (SRIs) are fully implemented, the platform will be set for future steady economic growth especially under more favorable global conditions,” Ong said.

The emphasis on implementation practices was further reiterated by Yeah who said that while the OECD endorsed the 10th Malaysia Plan, it is the government’s execution ability that would be the make or break for Malaysia’s success.

“The underlying fundamentals need committed and sustained efforts,” he said.

Also read:

M’sia primed for solid growth until 2016


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