KUALA LUMPUR, Dec 12— Malaysia’s economy is expected to be dampened by Putrajaya’s spending cuts over the next two years, Nomura Research said today as it forecast gross domestic product (GDP) growth rates of 4.5 and 4.0 per cent in 2014 and 2015 respectively.
However, the international research house conceded that it is more optimistic about Malaysia’s economy than others, claiming Putrajaya is on the right track to restore foreign investor’s confidence in the long run.
“We’re pretty optimistic that the Malaysian government is carrying on, going to execute all the plans which will reduce fiscal deficit ... That would present some drag on growth,” Nomura’s economist for Southeast Asia, Euben Paracuelles told reporters here.
The numbers come as Bank Negara Malaysia’s (BNM) governor Tan Sri Zeti Akhtar Aziz claimed that Malaysia will reach 4.5 to 5.0 per cent GDP growth this year, and 5.0 to 5.5 per cent in 2014.
Nomura presented its economic outlook for the Asia Pacific region excluding Japan today, where it warned Asian markets to implement tighter policies and structural reforms or risk becoming a “breeding ground” for future financial crises.
Despite that, it grouped Malaysia with South Korea and the Philippines, as economies which are achieving good growth and fundamentals, as compared to the other group which contained China, India, Indonesia and Taiwan.
In a separate report on global equity outlook, Nomura also warned that Malaysia is among the nations which appear most vulnerable against the US Federal Reserve’s scaling back of its investment in the region, or quantitative easing.
Contributing to the vulnerability are Malaysia’s net corporate debt in non-financial sector of 31.9 per cent, and its private sector debt which has increased by 38 per cent in the last five years.
As a result, Kuala Lumpur stocks have been rated “neutral” in 2014, although Malaysia’s second largest banker CIMB Group Holdings was listed as one of Nomura’s favourite next year.
Last year, Nomura expected Kuala Lumpur stocks to underperform in 2013 as a result of the 13th general elections, and with the polls over, the firm predicted a rejuvenation of fiscal reforms next.
However, such reforms will increase Malaysia’s inflation rate up to 3.5 per cent in 2014, and a whopping 5.2 per cent in 2015 due to the start of Goods and Services tax (GST) in April that year.
This was based on the assumption that fuel prices will go up by another 10 per cent in the second quarter of 2014, its report said.
Earlier this month, Maybank Investment Bank Bhd also revised its 2014 inflation rate outlook for Malaysia to between 3.3 and 3.7 per cent, up from 3 to 3.5 per cent previously, after the electricity tariff hike was announced.
Nomura repeated its earlier prediction today that BNM will increase its overnight policy rate (OPR), a benchmark rate set by the central bank, from 3.0 per cent to 3.5 per cent in the second half of 2014.
In July, CIMB had also predicted that the OPR will start to move next year by around 25 basis points.
The OPR has stayed at three per cent since March 2011 but any change will affect other rates, such as the base lending rate and foreign exchange rate.
Malaysia has embarked on a series of subsidy cuts, starting with raising the pump price of RON95 petrol and diesel by RM0.20 per litre starting from September 3, to RM2.10 and RM2.00 per litre respectively.
The subsidy cut was announced by Putrajaya following global ratings agency Fitch which revised Malaysia’s sovereign debt outlook from “Stable” to “Negative” in July.
In Budget 2014, Putrajaya also said it would stop subsidising sugar by the current 34 sen per kg, in a move that may cause cascading price hikes.
Starting next year, the electricity tariff in the peninsula will also increase by 14.9 per cent or 4.99 sen to 38.53 sen for every kilowatt per hour (kWh), and 5 sen for Sabah and Labuan.