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Malaysia c.bank sees steady 2013 growth, lingering global risks
03/20/2013 Email this story  |  Printable Version

* 2013 GDP growth seen at 5-6 pct, inflation at 2-3 pct

* Export growth of 1.8 pct forecast, vs 0.1 pct in 2012

* Sees risk to growth if Europe instability re-emerges

By Anuradha Raghu and Al-Zaquan Amer Hamzah

KUALA LUMPUR, March 20 (Reuters) - Malaysia's economy is expected to grow 5-6 percent this year as strong domestic demand powers growth, although there's a risk that re-emerging euro zone instability and fragile global economic recovery could slam on the brakes, the central bank said.

Bank Negara, in its annual economic outlook released on Wednesday, said private spending drove growth last year and will play a greater role in 2013.

This largely echoes an upbeat progress report that Prime Minister Najib Razak presented on Tuesday for a decade-long, $444 billion Economic Transformation Programme (ETP) aimed to boost private investment and incomes. He will be hoping that the state of the economy will shore up his popularity ahead of a tight election that must be held by late June.

At a press conference on the central bank's annual assessment of the economy, Governor Zeti Akhtar Aziz replied to a question on the potential impact of the coming vote, "The election is taking place when the economy is doing really well. Unlike in Europe, we are not confronted with issues relating to unemployment, financial system, and credit flows not being resumed."

The central bank's report comes out at a time investors have mixed feelings about Malaysia. The trade-dependent country has had surprisingly strong growth in spite of poor exports, but there's significant worry about the coming elections, in which opposition parties might improve on their strong 2008 showing. Malaysia's stock market benchmark index is the only one in Southeast Asia to be down this year.

While Bank Negara was largely upbeat on economic prospects, it warned that the external environment remains challenging due to slowing growth risks to Malaysia's main export markets such as the U.S., China and the European Union.

"Under this challenging global economic environment, the focus of policies by the government and the bank will be on supporting the Malaysian economy to grow at a sustainable level," the central bank said.

IMPROVEMENT IN EXPORTS

Exports from Malaysia, a key producer of electronics, oil and palm oil, could rise 1.8 percent in 2013, as shipments of higher value manufactured products grow. This compares to 0.1 percent increase in 2012 but is in line with this year's recovery in Asian exporters like South Korea and Indonesia.

The central bank said it expects the shift in Malaysia's economy toward strong domestic consumption and private investments to continue.

Government spending, ramped up ahead of the general elections, is expected to increase more slowly in 2013 than last year in line with Malaysia's goals of lowering its budget deficit and encouraging private investments, the central bank said.

Malaysia's gross domestic product grew at a surprisingly strong 6.4 percent in the last quarter of 2012, topping the central bank's expectations and boosting full-year GDP growth to 5.6 percent, compared to 5.1 percent in 2011.

This year, Malaysia is likely to get a leg up from overall performance of Southeast Asia, which the central bank said is expanding due to infrastructure projects and upgrades around the region.

APPROPRIATE INTEREST RATES

Bank Negara, which has kept its key interest rate at 3.00 percent since May 2011, said monetary policy this year will focus on addressing risks to inflation and growth, with current rates still appropriate and accommodative.

It signalled inflation would be manageable at a higher 2-3 percent expected this year, compared with 1.6 percent in 2012, in spite of rising commodity prices and the gradual removal of government subsidies to lower the budget deficit.

Economists expect monetary policy to be kept steady as inflation remains mild, but say the central bank may consider a hike in the second half if prices begin to climb at a faster clip. This year's third monetary policy meeting will be May 9.

Malaysia's headline inflation rate remains one of the lowest in the region thanks to a long-list of items with government-controlled prices, from oil to rice and sugar.

The annual inflation rate in February, released earlier on Wednesday, ticked up to 1.5 percent, matching Reuters poll forecasts and moving away from December's near three-year lows.

Many Asian central banks have kept their policy rates on hold, citing manageable inflation, but hinted at possible monetary policy easing to revive growth if there's a lull in economic activity. (Editing by Niluksi Koswanage and Richard Borsuk)


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