Research firms see 2pc GDP contraction

 

With the stimulus measures gaining momentum, OSK Research and Kenanga Research expect the economy to contract by around 2.0 per cent.

OSK Research has revised its gross domestic product (GDP) growth forecast for 2009 to a contraction of 2.0 per cent instead of 3.0 per cent as projected earlier.

This was due to the stimulus effects gathering pace faster than anticipated and the government's efforts to spur growth, it said in a research note today.

Kenanga Research has maintained its forecast that the 2009 GDP will see a contraction of 2.1 per cent.

"With the current momentum setting the pace of recovery, it takes only a nudge to perk up GDP back to growth in fourth quarter of this year," it said in a research note today.

"As the impact of the fiscal stimulus goes full swing along with improvement in private spending and exports, we expect the GDP to rebound by 2.8 per cent in fourth quarter 2009," the research house said.

According to OSK Research, the economy will expand by 3.0 per cent year-on-year in fourth quarter 2009 as the positive effects from stimulus measures gain momentum and the upcoming festivals give added boost to consumption growth.

"For next year, we revise upwards our GDP growth forecast from 2.5 per cent to 4.0 per cent in view of the government's efforts to add impetus to growth in private consumption and the services sector, steadier commodity prices as well as stabilising external demand," it said.

However, OSK Research said it remained concerned that the global economic recovery will be gradual and uneven, particularly once the stimulus policies begin to be withdrawn in 2010.

The research house believes the government, still concerned over the nascent economic recovery based on the latest third quarter GDP statement, is unlikely to withdraw all fiscal measures going into next year.

"However, it will gradually tighten the banking system through moral suasion such as requiring banks to restrict lending to the real estate and property sector, instead of hastily raising interest rate," it said.

Malaysia's economy saw its smallest contraction in the third quarter of 1.2 per cent year-on-year, following a 3.9 per cent year-on-year drop in the previous quarter.

OSK Research said the current low interest rate remained vital in encouraging private sector investment following the government's efforts to leverage more on private investment initiatives to support economic development next year.

"That said, we believe at this juncture that the overnight policy rate (OPR) will probably be retained at 2.0 per cent next year," it said.

On the inflation outlook, OSK Research expects this year's inflation rate to fall below its forecast of 1.0 per cent and the official forecast of 1.3 per cent.

"However, we still see the risk of inflationary pressure rising next year as the global economic recovery sets in," it said.

"The improving demand will bolster commodity prices, such as crude oil, next year and put price pressure on commodity-related consumable items such as transportation fares and electricity."

Kenanga Research expects growth for next year will remain below its potential, saying that it is projected to expand by only 3.0 to 4.0 per cent.

This was due to the drastic planned reduction in domestic fiscal spending for next year and the sluggish growth recovery in the United States, the research house said.

"Furthermore, the huge global fiscal debt and the ongoing process of deleveraging may dampen the global recovery process going forward. This would portend the authority to rely more on monetary policy or other radical measures to ensure sustainable growth," it said.

On the consumer price index (CPI), Kenanga Research projected the inflation rate to expand by 2.1 per cent next year on the back of economic recovery.

"Along with the impact of improved economic environment, we project the CPI to rebound to 0.2 per cent in fourth quarter this year after contracting by 2.3 per cent in third quarter," it said.

In spite of the upward trajectory in inflationary trend in the coming months, Kenanga Research does not expect Bank Negara Malaysia to change its current easy monetary stance.

"This was because it still needs to nurse the seemingly weak recovery trend going forward. Hence, we expect the benchmark OPR to stay at 2.0 per cent at least till first half of next year," it said. -- Bernama