KUALA LUMPUR (Dec 9, 2013): Malaysia's inflationary pressure may be building up but it will not severely affect the economy that is poised to expand by 4.2% next year, said Institute of Chartered Accountants in England and Wales (ICAEW) chief economist Douglas McWilliams (pix).
He doesn't see inflation in Malaysia becoming a systemic problem, that is, affecting the whole economy, and that it will be absorbed.
"There will be some upward pressure on inflation and we'll see higher numbers in 2014, more so in 2015, but they won't become systemic because we don't think the level of demand here is so high," he told a media briefing after presenting ICAEW's quarterly forecast report titled the "Southeast Asia Economic Insight" here on Friday.
"We're a bit more cautious on economic growth and we don't think it'll be demand pressure that will lead to the uptick in inflation from various sources turning into something dangerous," he said.
In October 2013, Malaysian annual inflation rate accelerated for the second straight month to 2.8%, from 2.6% in September, as transport prices increased, still reflecting the cut in fuel subsidies.
McWilliams said inflation will be slightly higher due to currency movements as well as structural adjustments as subsidies are reduced and the goods and services tax (GST) is being implemented.
Meanwhile, he opines that Malaysia has a chance of seeing a 5% gross domestic product growth in 2016.
"There's a chance of a 5% growth in 2016 because by then much of the budget consolidation process would have been achieved and the GST would've been implemented.
"The economy would be moving to normal by 2016 so there is a good chance of returning to a more traditional rate of growth," said McWilliams, who is also executive chairman of the Centre for Economics and Business Research Ltd (CEBR), ICAEW's global economic partner.
CEBR has forecast Malaysia to post a GDP growth of 4.6% in 2013, 4.2% in 2014 and 4.1% in 2016.
"2014 is a transition year for Malaysia to be used productively to move in from consolidating government finances and reducing subsidies as well as increasing taxation on consumer spending. For 2014, the strongest driver is exports."
"We are predicting exports of RM723 billion for 2013 (growth of 2.9% over 2012) and RM766 billion for 2014, a growth of 6%."
He added that the implementation of the GST in 2015 will further hamper consumption growth but consumer spending will still be a contributor to growth.