Continued improvement in global growth – We expect continuation of gradual improvement in the global economy with the US leading on firmer expansion of its domestic economy and Europe putting more emphasis on growth rather than austerity whilst Japan is expected to retain its upwards trend. In terms of the Fed (and all the other major central banks), policy remains geared to stimulating growth, or in the case of China supporting economic activity.

Exports on the mend – Improving external demand and sustained domestic growth should be able to push Malaysia’s GDP growth between 5.0% - 5.5% in 2014, compared to our estimate of 4.8% for 2013.

Further fiscal consolidation – both government and consumers will be going through some belt tightening in 2014 on continuation of fiscal consolidation in the form of gradual removal of petrol subsidies, followed by an increase in electricity tariffs as well as a rise in highway toll rates. This is to reign in debt and deficit.

Inflation to pick up – Inflationary impact of subsidy rationalisation and a slew of other regulated price increases will weigh on overall prices of goods and services, which may see the average CPI rate to exceed 3.0% in 2014.

Interest rate to stay pat – due to the cost-push inflation and worries of diminishing consumption as a result, we think that the OPR will remain at its current level of 3.00%. A rate hike option is a remote possibility unless a sharp demand-push inflationary pressure weighs on the economy along with a large outflow of capital.

Ringgit to remain volatile – A multitude of factors from QE tapering in the US to implementation of fiscal and monetary policies internally will lead to a volatile USD/MYR. The pair would fluctuate anywhere between 3.15 to 3.30 over the next three to six months. In the LT however, strong fundamentals would support the currency and our 2014 year-end target is 3.09.

Macro balance manageable – Despite the capital flows, the situation remains manageable and CA account continues to remain in a surplus. Though federal debt is starting to scrape the 55%, macro prudential measures and fiscal consolidation steps has already been put in place to reduce public debt and narrow the fiscal deficit.

Some risk remains – Pilling up all the overdue price increases together in too short a period could end up slicing into consumption beyond healthy levels, threatening overall economic growth. Externally, Europe’s already precarious growth could backslide and US politicians could be at loggerheards (again) and hinder growth. China’s switch in policies by shifting priority towards the domestic economy could take longer to gain traction and normalize, pulling back overall growth.

Beyond 2014 – Barring unforeseen circumstances, the global economy may finally begin to see a steadier constant growth similar to that before the 2008/2009 global financial crises. Meanwhile, with the implementation of the GST in 2015 the Malaysian economy will enter into a new era, one that would emphasise on consumption driven growth as well as a shift from external towards domestic demand. As in most cases, economic growth is expected to be tempered in the first 6 to 12 months as domestic consumption would slow to adjust to the new direct tax system. Maintaining our cautiously optimistic view on the long-term economic outlook, Malaysia’s GDP growth may remain above 5.0% in 2015.

Summary

The brighter outlook on the global economy seems to be overshadowed by the adverse financial and economic impact on emerging economies brought about by the US Fed’s decision to scale back its asset purchase programme or quantitative easing (QE). Though we remain cautious of the external risks, we are upbeat on Malaysia’s macroeconomic prospects given the steady growth momentum (stronger GDP growth in 2H13 vs. 1H13), a firmer commitment towards fiscal reforms to reduce fiscal deficit and manage public debt via new tax measures and development spending, sustainable current account surplus and the removal of political uncertainties. Further complementing that, the last few years has seen burgeoning domestic growth which has rather successfully buffered sluggishness that has befallen advanced economies and this will continue to spur on this coming year.

Cyclical recovery. Improved growth outlook in advanced economies and a more synchronised global recovery, along with a sustainable domestic demand and a more aggressive Visit Malaysia Year tourism campaign would support Malaysia’s cyclical economic recovery in 2014. Continued outflow of capital and rising cost of living may put the lid on growth but barring any unforeseen external shocks the Malaysian economy may prove yet again as resilient as it has been with GDP projected to grow between 5.0% and 5.5% in 2014 from an estimate of 4.8% in 2013.

Global outlook

A challenging transition towards stability and growth Better global outlook. Since the height of the global financial crisis of 2008, it has been an arduous road for developed economies and developing nations alike, and skeptism surrounding fiscal and monetary policies continues to hammer policy makers. But after six years, governments and central bankers are determined to bring growth back to their countries (and voters). Though it took longer than some have hoped and maybe not long enough for others, economies are finally heading the right direction. Hence we are looking at 2014 to be a year of a relatively stable recovery with global economic growth projected to expand to 3.6% from an estimated 2.9% in 2013 as projected by International Monetary Fund (IMF) in its October World Economic Outlook (WEO) report, on the back of synchronous expansion of developed economies lead by the US, Europe and Japan for the first time since 2011. Meanwhile, the economic performance in developing Asia, led by China is expected to be mixed to moderate in 2014.

Green shrubbery.This is not to say that all is rainbows and green meadows but when compared to 2008 and subsequent years of negative and tepid growth, at least we can say there’s some green shrubbery in the horizon.

US starting on a strong footing. The general outlook for the US is one of cautious optimism. Mentioned many times over and made fun of at every opportunity available, one can’t just forget the embarrassing partial government shut down last October. However, the fact that they’ve come up with a budget deal ahead of the deadline in January shows that the Republicans and Democrats are finally doing their jobs. The bill will alleviate around half of the automatic spending cuts known as the sequester, the next round of which was set to take effect in January. In addition to positive economic indicators such as strong retail sales (+0.7% in November – largest in 5 months), continuous expansion of manufacturing (PMI recording at 55 in December) and dwindling unemployment rates (5-year low of 7.0% in November), 1Q14 is so far looking to start on a good note.

Political gridlock. But there’s also the possibility of another round of gridlock – this time concerning the debt ceiling. Candidates will be facing midterm elections and the GOP (Republicans) will push their demands in exchange for increasing the debt limit. If an agreement isn’t made, the US government will not be able to pay their bills come early March and we will see yet another example of how the US economic recovery is being hindered by the politics of the very people who are trying to boost recovery. As in the previous debacles over debt ceiling, it too is expected to be resolved.

A dovish-inclined Fed. The installment of Janet Yallen as the new chairman of the Federal Reserve also brings about some uncertainties to global financial markets. However, from what we can deduce from her past policy stance, she will be undertaking a more dovish approach than her predecessors and is said to lead the Fed to be more transparent on their decision-making. This hopefully means lesser speculation and volatility in the markets. After almost five years outgoing Fed Chairman Ben Bernanke announced the process of unwinding its bond purchase programme or quantitative easing (QE) on 18 December. Though commencing in January with an initial US$10b reduction from US$85b to US$75b, we believe that the end of QE would not be that soon as Ms Yallen is likely to keep interest rates at zero, at least until unemployment rates drop to 6.5% (maybe even lower if labour force participation rate doesn’t improve faster). Having said that, we think her decisions will be largely data dependent, and that further tapering will be gradual (we reckon around US$10b – US$15b each time) and only as and when she feels the US economy can cope without the additional funding.

A sign of improvement ahead. The mere mention of ‘QE tapering’ would continue to cause jitters to the global financial market. Emerging economies took a particularly hard hit when it triggered massive fund outflows on worries of credit tightening. This also triggered a huge migration of global funds from the emerging economies, mainly back to North America and a major shift in asset classes namely from bonds towards equities. Nonetheless, QE tapering has always been an eventuality and is impirical proof that the the state of the world’s biggest economy is improving and should be seen as a positive development for the global economy as a whole going forward.

Eurozone – still a challenging recovery. Across the Atlantic, though not as sanguine as the US, the Eurozone is poise for a modest recovery. The fact that Ireland has now exited the bailout, with Portugal said to be next in line is seen as a milestone towards eurozone financial stability. Looking at overall GDP growth in the Eurozone, it has officially come out of recession, posting a 0.1% quarterly expansion in the 3Q13. However, this is slower that the 0.3% in the 2Q13, which means that it still has a far way to go. As we all know, this crises is the toughest test yet for the Euro area and the long healing process might have just begun. Euro Area GDP growth in 2014 would see a turnaround of 1.0% from an estimated -0.4% in 2013 (IMF WEO October report).

Unemployment remains high. There is also massive disparities between the different individual countries as seen in the 27.3% unemployement rate in Greece and 26.7% in Spain versus Austria’s 4.8% and Germany’s 5.2%. There is also fear that France, the region’s second largest economy may be heading back into a recession, as its PMI reading fell to a seven-month low of 47.0 and had faced a rating downgrade by S&P in November.

Growth optimism prevails. But let’s try not be overly pessimistic, overall manufacturing PMI in the region has so far managed to keep above the 50 point expansion level and exports from Malaysia to the region has been expanding by double digits for the last four months in a row (latest at 21.4% YoY in October). The Eurozone also recorded a trade surplus of €17.2b in October, due to a rise in exports and more than doubled year-to-date surplus compared to the same period a year ago (€122.8b vs €57.4b) points to rising competitiveness. We reckon that 2014 will be a year of lesser austerity and stronger focus on encouraging growth, starting with the ECB cutting interest rates by 0.5% last November. And with Angela Merkel sworn into serve a third term as Germany’s chancellor, the region’s most powerful economy is no longer in a state of uncertainty and can now continue dealing the presing economic issues, both domestically and regionally.

Japan gaining traction. Over in Asia, Abenomics has been gaining broader traction in Japan and we see the BoJ’s tankan survey at its highest level in six years. But it isn’t just the big manufacturing firms showing better sentiment, with small manufacturers’ sentiment hitting a six-year high and small non-manufacturers’ index turning positive, optimists outnumbered pessimists for the first time in over 20 years. Core inflation rate is at a five-year high (+0.9% YoY) and jobs availability is at its highest in nearly six years (+0.98 job-toapplicants ratio). Japan’s exports also saw its ninth consecutive month of growth in November (+18.4%), which reflects that gradual recovery in global economy.

Impact of weakening Yen. Though the weaker yen has been advantageous to its exports industry, it is inflating the costs of imports, especially fuels, of which the country has had to import in large quantities following the shut down of their nuclear power source post 2011 tsunami. In addition to that, with increasing consumer spending being key growth and driver of its economy, the increase in imports is widening its trade deficit. Already facing the biggest debt to GDP in the developing world (expected to reach 227% by the end of March 2014), even the increase in tax in 2014 will have a difficult time tackling the problem. There is also the problem of wages being unable to rise fast enough. The government needs wages to increase faster than the inflation rate if households are to avoid being hit by the 3 percentage point increase in sales tax come April 2014. Premier Abe’s stimulus package worth 5 trillion yen to soften the tax hike will be for naught if consumers are being tied down by decreasing real-income.

Japan Vs. China. Then there is competition with China, and other Asian countries are caught in between. Japan Prime Minister, Shinzo Abe has visited all the ASEAN member states in the last year and looks to cap his campaign by pledging ¥2 trillion (US$19.4b) in aid and loans to member nations. In addition to that, Tokyo has nearly doubled its currency swap with Indonesia to US$22.8b, US$12.0b with the Philippines and aiming to re-enter a swap deal with Singapore, Thailand and Malaysia. Though the main aim of this is to provide cushion againts any distruption when US QE tapering begins, it’s undeniable that it’s stepping up efforts to strengthen ties with the rest of East Asia.

Cautious on China. Though China, similar to Japan, has been showing improvement in exports on the back of better demand coming from developed economies as well as emerging economies alike (exports rose by 12.7% in November), its expansion is growing at a slowing pace. Growth in China's vast factory sector slowed to a three-month low in December as reduced output offset a pickup in new orders, the PMI perliminary survey showed. However, following the Communist Party plenum in November, the authorities have pledged economic and social reforms, up to a point of saying that they’ll settle for slower but steadier economic growth after decades of breakneck expansion. China’s GDP is expected to moderate to 7.5% in 2014 from an estimated 7.3% in 2013. The IMF is looking at a growth of 7.3% in 2014. According to the latest closed-door meeting in December, leaders have agreed to steer policies away from its dependence on exports and foreign investment, re-routing the economy to more sustainable domestic expansion driven by consumption, services and innovation. Already they have started by relaxing the country’ one-child policy and liberating financial markets.

Growth Prospects

Overview 2013

A stronger 2H13. The 3Q13 growth was a sigh of relief, justifying our expectation for a more favourable growth of 5.3% for the 2H13, following a 1H13 growth of 4.3%, therefore bringing about to our full-year 2013 estimate to 4.8%. However, this is a slight downward revision from our initial 5.0% 2013 growth as the 1H13 was slower than we had hoped and though 3Q13 was spot on to our forecasts, we have had to revise the 4Q13 growth to 5.6% from 6.3%.

Manufacturing on the mend. In any case, we still stand alongside our estimate that the 4Q13 will be strongest quarter of the year, on the back of improved manufacturing of which we are expecting an expansion of 5.3% from 4.2% in the 3Q13. This goes hand in hand with an expected improvement in value-added exports, of which we estimate it to accelerate to 9.1% from 1.7% in 3Q13 on further improvement in the global economy. Construction should also remain strong at 9.3% (3Q13: 10.1%) on on-going infrastructure projects, though at a slower pace due to the higher base.

Sustainable domestic demand growth. Taking into account the recent subsidy rationalization resulting to an increase in petrol prices pinching pockets, we are looking at private consumption to moderate to 6.9% from 8.2%. Nevertheless, aggregate demand as a whole should be stronger (4Q13: 9.1% from 3Q13: 8.3%) on further extension in overall investment (4Q13: 15.0% from 3Q13: 8.6%) and on a generally better outlook for 2014, spurring capital investment, as well as in preparation for Visit Malaysia 2014. All in all, we reiterate our overall GDP forecast of 2013 at 4.8% (2012:5.6%).

Outlook 2014

Export-led improvement. With a generally more positive global outlook for 2014, Malaysia’s open economy will benefit from an increased demand for its exports. We foresee that value-added exports would expand to 2.8%, following an estimated 1.3% growth in 2013. Though not as strong as the 4.6% growth in 2011, it still beats pre-crises levels of 1.6% in 2008. We foresee that exports could add up to 2.6 percentage points (ppts) to overall GDP in 2014, compared to 1.2ppts we estimate for 2013. Alongside exports, the manufacturing sector is projected to increase by 4.8% in 2014, from 3.4% estimated in 2013. This sector is estimated to add 1.2 ppts to the 2014 GDP compared to 0.8ppts estimated in 2013.

Infrastructure push. Our outlook on the construction sector remains positive though growing at a more moderate pace as many major projects under the Economic Transformation Programme (ETP) are in the advance gestation phase. However, there will still be construction works for the property sector and Public Private Partnerships projects. This sector is projected to expand by 9.2% in 2014 from 10.8% in 2013, contributing 0.3ppts from 0.4ppts. Visit Malaysia 2014 should be particularly beneficial to not just the traditional tourism industry, but spreading wide to other parts of the service industry such as medical tourism and retail. However, the bulk of the services sector will be from domestic demand and we are looking at overall services to improve slightly, by 5.8% in 2014 from 5.7%.

The transition effect. This brings about to Malaysia’s own domestic economy, which has been burgeoning in these last few years, up to a point where it has managed, rather successfully to buffer external demand shocks since the global financial crisis started in 2008. It should be emphasized the magnitude of this achievement due to the fact that Malaysia’s economic model has traditionally been one of export dependency. As such, we reckon that 2014 will continue to see a steady domestic growth though at a slightly moderate pace due to less-than-popular but essential fiscal consolidation.

Fiscal reforms to pare down consumption. Nonetheless, aggregate demand is projected to expand at a slower rate of 5.8% in 2014 from an estimated 8.3% in 2013. Fiscal consolidation, inclusive of subsidy rationalization would mean that private consumption will be particularly affected, slowing to 6.1% from an estimated 7.5% in 2013. Public consumption would even slow further to 3.4% from an estimated 6.8%. Seeing as how it’s been over three years since the launching of the ETP, the momentum gained from it would begin to wind down and we are projecting overall investment in 2014 to pare down to 6.4% from 10.6% estimated in 2013. Apart from a higher base effect, this is also due to further cutting back of government investment, as they pass the reigns to the private sector. As domestic demand sheds off some of its contribution to overall GDP growth in 2013, exports is expected to more than compensate it. Hence, barring any unforeseen circumstances and external shock, we are projecting Malaysia’s GDP to increase between 5.0% and 5.5% from an estimated 4.8% in 2013.

Fiscal Policy – Continued Consolidation

Conspicuous timing. Most likely by design, it is just as well that stricter attempts to reduce mounting fiscal burden will be commencing at the same time as global economy begins to improve. This should hopefully mitigate steps to narrow fiscal deficit as the government begins tightening its belt. The government has already begun implementing measures to reign in debt and reduce its budget deficit, starting off with increase petrol prices earlier in October 2013. This is followed by an increase in electricity tariffs in January and there’s every possibility of another petrol price hike some time in 2014, though we doubt it’ll be so close after the electricity tariff hike.

Inevitable tax reform. At the forefront, it is the implementation of the 6.0% Goods and Services Tax (GST) come April 2015 that will impact the economy in 2014, especially in the second half of the year. Though an unpopular move, it is a necessary one and something that the government should have done years ago but in this case, better late than never, especially at a time when rating agencies have been breathing down necks of policy makers about reducing debt and deficit. GST will not only increase government revenue but the structure of this broad-base taxation will also help reduce leakages along the valuechain.

Short term pain. Case studies have shown that there will be an increase in consumption and investment up to two quarters (or more) as a result of anticipation of a GST. It may be unpopular for political reasons but based on countries that had introduced GST their stock market usually reacts positively before and occasionally after its implementation. With a fixed timeline for the GST, our research has shown that this will bring about a boost throughout the whole economy and the capital market. We will be seeing strong investment and consumption from the private sector, especially in the 2H14 and a final push in the 1Q15 after which we are expecting a growth moderation lasting 6-months to a year after the implementation of the GST.

Fiscal reform redux. On the government end, we should be looking at a more stringent fiscal consolidation, as promised in the recent Budget 2014. Federal government finance is expected to remain more or less the same as 2013, as the government pursues further fiscal reforms to achieve their fiscal deficit target of 3.5% of GDP in 2014 (2013: 4.0% of GDP). This is achieved by removing non-productive spending and putting the lid on total expenditure. Meanwhile, the creation of a Fiscal Policy Committee and Outcome-Based Budgeting to improve the government’s finances also means to hopefully keep international rating agencies off its back, at least for the time being. However, we do believe there is the possibility that the budget deficit would be higher at 3.7% of GDP primarily because the government might overshoot its total expenditure target of RM262.2b due to higher allocation towards BR1M and other financial aid to cushion the impact of higher cost of living for the lower and middle income group.

Debt solution. Though the government have so far been very strict on ensuring that their debt stays below the 55% of GDP threshold, at an estimated 54.7% for 2014, that’s just a mere 0.3 percentage point away from breaching the statutory debt limit. It’s an open question of whether or not the ceiling will be raised or whether we will be looking at the remote possibility of ‘austerity’ up ahead. With the possibility of its sovereign debt rating being downgraded neither would be the likely solution. Instead we believe that the answer is already in place: the government is confident that it has the capacity to reduce its debt in the future supported by an aggressive fiscal consolidation plan via subsidy cuts and the broader-based tax collection via the GST in 2015. This is also supplemented by the fact that Malaysia still has relatively large international reserves, low external debt, lush domestic liquidity, a high saving rate and its current account, though narrowing, remains a surplus.

Monetary Policy – Likely to stay pat

BNM to err on no rate hike. Though the market is expecting a rate hike even as early as in the1H14, we believe that Bank Negara Malaysia (BNM) is more likely to keep the Overnight Policy Rate (OPR) at its current level of 3.00% for 2014. This is due to the inflationary impact of subsidy rationalization and other regulated price increases slated for 2014 which include electricity tariffs and toll rate hikes happening within the next six months. Along with another round of fuel price hike, these successive price increases biting into people’s pockets in the span of less than six months followed by an incoming GST in April 2015, would prompt people to save more in anticipation of further diminishing real income.

Mounting inflationary pressure. While we foresee that BNM may unlikely raise rates, we do not discount the possibility that BNM may exercise its option to raise the OPR to reign on rising inflation. Rising domestic consumption and investment pre-GST implementation coupled with further improvement in external demand could potentially trigger a change of policy mindset. BNM has also been known to be ahead of the curve and may decide to increase the rates 6 months (or more) before the GST is implemented in April 2015, so as to get the economy used to higher interest rates and at the same time, ensuring for real returns to stay the same (or higher) as subsidy rationalization may push the inflation rate above 3.0% next year. A possible rate increase, though rather remote at this juncture, would be a marginal one or 25 basis points.

Timing is key. A higher rate may, to a certain extent, help banks to raise (or at the very least, retain similar) its margins on net interest income in light of loans growth being hit by macro prudential measures introduced by BNM recently to control household debt and speculation. The timing on when the OPR hike will be (if they do decide it at all) also depends on the effectiveness of those measures and the consequences of them. On the other hand, if the Fed accelerates QE tapering and signal a sooner-than-anticipated monetary tightening, a higher domestic rate could help prevent further capital outflow. Nonetheless, even after the QE ends we do not expect the Fed to immediately raise interest rates. In fact, The Fed will still expand its balance sheet in 2014, and is a long way from raising rates. Given that it all depends on the sustainability of the growth momentum of the US economy, it is a very long way from moving to a tight monetary setting. The soonest we reckon would be somewhere in 1H15.

Ringgit outlook – to strengthen but will remain volatile

Volatility to extend into 2014. The QE tapering would definitely roil the forex market. For the next six months we will be seeing some rather volatile trading for the ringgit, probably around the levels of 3.15 and 3.30 to the US dollar. There is downward pressure on the ringgit as economic improvement in the US is making the greenback favourable again. The impact of capital outflow, though fundamentally not severe (domestic financial institutions are more than capable of picking up the slack), is pushing the currency lower in spite of it being relatively undervalued. Since the announcement of QE tapering by outgoing Fed Chairman Ben Bernanke in early May, the ringgit have suffered a loss of as much as 10.0% of its value against the US dollar compared to a depreciation of 7.3% for the whole of 2013.

Still reasonably undervalued. However, the ringgit is still regarded as one of the more favourable currencies in the region. Malaysia still has a current account surplus and low external debt compared to its peers in the region. India for example has a current account deficit of US$5.2b and Indonesia with US$8.5b in 3Q13 respectively whereas Malaysia continue to remain in a surplus which is currently at $3.2b (RM9.8b) in 3Q13. Alongside implementation of policies to tackle debt and deficit, ETP projects running more or less on schedule, a well structured financial system and favourable outlook from the IMF and rating agencies, we do believe that the currency has every capability to gain strength. On account of domestic improvements especially the expected boost in consumption and investment two or more quarter ahead of the GST, our year-end target for the USD/MYR is 3.09.

Risk to growth

Reforms side-effects. Though fiscal consolidation in the form of subsidy rationalization and cost cutting has been expected for some time now, there is worry that it is too much too soon. Starting with an increase in petrol prices, followed by an increase in electricity tariffs and possibly even more petrol price hikes in the months to come and then the expected GST come 2015, private consumption might end up being hit too hard. Already dealing with escalation property prices, dwindling real incomes due to an uneven rise in wage rates against real inflation, the cooling of private consumption might permeate and bleed throughout the whole of 2014 and continue into 2015, threatening growth of the overall economy. There is also doubt whether or not there is political will and discipline for the government to truly walk the talk in addressing leakages and inefficiencies that has been fuelling fiscal debt.

Global uncertainty remains. Though the global economy i.e. US, Europe and Japan has so far been posting more positive economic news than not, there is still other factors overshadowing real economic growth. In the US for example, there could very well be another political deadlock on issues of the debt ceiling whilst policy makers in the Eurozone are at loggerheads on deciding what policies are best to encourage growth and growth in the Eurozone is already precarious as it is. There is rather glaring unevenness and disparity between countries like Greece and Germany for example, both of which use the same currency and subjected to similar policies, yet are at very different economic structures. Meanwhile, the new commitment of China’s new leadership to transform its export-led economy into a domestic-driven one may create growth uncertainty especially in the transition period. Coupled with its shaky financial system and a highly leveraged construction sector, we may see China’s economy grow below its potential in the coming years.

Beyond 2014

A necessary change. With the implementation of the GST in 2015 the Malaysian economy will enter into a new era, one that would emphasise on consumption driven growth as well as a shift from external towards domestic demand. Though the GST is still widely critisised for being introduced amidst a sharp rise in cost of living, it has received encouraging remarks from multilateral organisations and international rating agencies as it reflects the willingness to employ fiscal reforms apart from the effort to make Malaysia less-dependent on exports. For this reasons it’s fair to expect the transformation towards a developed nation to be anything but easy or a smooth journey. As in most cases, economic growth is expected to be tempered in the first 6 to 12 months as domestic consumption would slow to adjust to the new direct tax system. To be fair, however, the GST announcement came together with some financial assistance for the lower income group and a reduction in individual income tax rates alongside a cut in the corporate tax rate in 2015.

Greener shrubbery. On the external front, the focus would be on when the Fed would start to raise interest rates following its move to dial back its bond purchase programme. Though we reckon it wouldn’t be that soon, the underlying sentiment is that the world financial markets would be more stable and the advance economies continue to improve, reflecting better global growth prospects in 2015 and possibly beyond. Invariably, Malaysia’s economy is expected to reap the benefits of further improvement in external demand. However, the impact of GST would likely put the lid on further upside to Malaysia’s GDP growth in 2015. Eventually, just like the removal of subsidies, the economy will adapt to the new tax system and growth trajectory will resume its previous pace, ceteris paribus. Maintaining our cautiously optimistic view on the long-term economic outlook, Malaysia’s GDP growth may remain above 5.0% in 2015.

Source: Kenanga