KUALA LUMPUR: Malaysia's economy is expected to expand 5.3 per cent next year from an estimated 4.7 per cent this year, Standard Chartered said yesterday.
External demand is expected to pick up next year, mitigating the expected slowdown in domestic demand, said the bank.
Private consumption may moderate next year due to higher inflation, subsidy cuts and high household leverage, said Standard Chartered in its 2014 global focus on "Rising East, Emerging West" Report.
Its growth forecast was in line with the government's projection of 5.0-5.5 per cent gross domestic product (GDP) growth for next year.
"GDP growth was 4.5 per cent in nine months of 2013 and appears to be on track to meet our full-year forecast of 4.7 per cent," the bank said.
The report said Malaysia's labour market will remain healthy, supporting wage growth and consumption, while the manufacturing sector is likely to strengthen, thanks to the pick-up in external demand.
"This should support wage growth in the sector, which accounts for about 17 per cent of total employment and saw a wage increase of about 7.6 per cent in nine months of this year, despite a softness in manufacturing," said Standard Chartered.
Domestic factors are likely to be more supportive of the ringgit next year, the bank said.
However, the local unit is expected to underperform in the first half of next year due to heavy bond inflows in recent years.
"This is largely based on our view that the United States Federal Reserve will start quantitative easing tapering in June next year.
"We expect the ringgit to rally in the second half of next year once tapering is fully priced in and against a backdrop of continued Chinese yuan appreciation," the bank said.
Net external demand is expected to continue to improve in 2014 after subtracting an average 3.5 percentage point from quarterly year-on-year GDP growth between the first quarter of last year and third quarter of this year.
The contribution from net external demand is likely to be flat next year while exports are expected to rise and imports may keep pace.
Headline consumer price index inflation to rise to 3.4 per cent in 2014 from a projected 2.1 per cent in 2013, slightly higher than the government's two to three per cent, Standard Chartered said.