Malaysian Rating Corp Bhd (MARC) expects Malaysia to record a respectable gross domestic product (GDP) growth of five per cent in 2014 due to numerous challenges ranging from softer consumer spending and stricter lending measures by financial institutions.

It also said that a meaningful recovery of global trade will be the key to Malaysia's ability to maintain the five per cent growth next year.

The rating house said domestic demand was crucial to achieve the five per cent growth in 2014.

"In particular, the positive contribution from private investments may prove to be the saviour for the economy in 2014 as the pace of private consumption may moderate due to the knock-off effects from rising consumer prices," it said in a
report, 'Economic Outlook 2014 - Focusing on Domestic Challenges' today.

MARC said the momentum in investments will likely be sustained at a relatively strong level with a more meaningful recovery expected to take place in next year.

Meanwhile, it said the government was likely able to achieve the targeted deficit level of 3.5 per cent of GDP next year on account of higher-than-expected revenue growth.

Other factors included further cutbacks in development expenditure to offset the increase in operating expenditure and a slower expansion of operating expenditure in the wake of further subsidy rationalisation efforts by government, it said.

"Notwithstanding these, we are of the view that the reduction in the headline deficit figures will have to be seen from a broader perspective," it said.

As for the inflation, it forecast the rate to be at 3.5 per cent next year.

"We believe the Consumer Price Index will spike by more than one percentage point from its level in 2013 due to several developments which have taken place or are likely to happen in the near term.

"These include, among others, electricity tariff increase, further reduction in fuel subsidy expected in the second half of next year, pre-goods and services tax price increases and possible rise in toll charges," it added.

MARC said the subsidies on consumer products would not be further
rationalised next year after the abolishment of the sugar subsidy.

"This is due to the sensitive nature of such measures as many have already voiced their concerns over the high cost of homes and consumer goods in rural and urban centres.

"The only way the government can continue implementing measures to relieve its burden on operating expenditures is by adjusting prices of fuel more frequently," it said.-- Bernama