MIER: 2014 economy to improve on last year’s performance

KUALA LUMPUR (Jan 29, 2014): The Malaysian Institute of Economic Research (MIER), which maintained its 2014 gross domestic product (GDP) at 5.5%, expects the overall economy to perform better this year despite the pessimistic outlook from consumers and the business community, said its executive director Dr Zakariah Abdul Rashid (pix).
"Judging by what the International Monetary Fund (IMF) has shown, the development in the European and American economies as well as the firm consolidation of the Chinese economy, I think 2014 will be better than 2013," he told reporters at the Malaysian Economic Outlook briefing yesterday.
"The first quarter (Q1) is the beginning of the year and judging from the consumer sentiment index (CSI) and business conditions survey (BCI), though it is not good, the rest of the year will be better. If the export and import trend continues, I'm sure it will change the perception of the manufacturers," he added.
MIER's BCI fell from 98.6 points in the third quarter (Q3) last year to 92 points in Q4 while its CSI fell from over 100 points in Q3 to 82.4 points in Q4 last year.
Zakariah said the consumers may be over-reacting, which is understandable and there is anxiety in the inflation situation while businessmen are pessimistic about the economy for Q1.
"On the CSI, I think this is more influenced by the inflationary and cost of living issues. If this issue can be arrested, things will get better," he added.
Zakariah said the central bank is likely to maintain the overnight policy rate (OPR) for the first half of this year but rising inflation may prompt it to increase the OPR in the second half of the year.
"We think Bank Negara Malaysia (BNM) will try their best not to change the OPR. Though the inflationary pressures are there, it still does not warrant them to change the OPR yet.
"If you increase OPR, the base lending rate (BLR) will increase. So, with the increased prices, it will add burden to the people and there will be possibility of some default. Therefore, BNM has to balance these," he added.
He said BNM would have to balance between the need to serve the business community in order to have a more competitive economy and the need to consider the welfare of households.
Commenting on the ringgit, Zakariah said MIER expects it to return to pre-crisis levels of RM3.40 to RM3.50 against the US dollar by year-end.
"If you look at the trend, I think the ringgit will depreciate further but I think BNM will not let the ringgit depreciate sharply which will put the economy at risk. Of course there will be some intervention to ensure that the economy will be competitive," he said.
MIER had also forecasted 2013's gross domestic product (GDP) to grow at 4.8% for the full year. With GDP for the first three quarters at 4.1%, 4.4% and 5% respectively, the final quarter would have to register a 5.7% growth to hit the 4.8% projected for the full year, an ambitious figure according to Zakariah.
He said although 2013 started off with a lot of uncertainties, the economy started to improve in the middle of the year after the 13th General Elections and slight improvements in the European and American economies.