Malaysia: Just Playing Poker with 2010 GDP Projections

Amresearch has been going hyperbole in their projection of the 2010 GDP for Malaysia.

They based their projection on the underpinning of household spending and exports that is driving Malaysia’s economic growth to levels unseen since 1996.

Amresearch’s revised forecast follows announcements by the Malaysian Institute of Economic Research (MIER) and financial services firm JP Morgan that also upgraded Malaysia’s economic growth in 2010.

Strengthening domestic and external conditions led Amresearch to upgrade Malaysia’s economic growth to 8 per cent in 2010 from 5 per cent previously. It also predicted GDP growth of 6 per cent for 2011.

Amresearch said that first quarter growth “probably” expanded at 8.9 per cent which would make it the fastest in a decade.

“With prospects of a disappointing global upswing getting dimmer, real GDP will be sustained at around 6 per cent in 2011,” said Amresearch senior economist Manokaran Mottain in a report today.

He also sees the ringgit ending the year at RM3.10 to the US dollar which, he says, will be reflective of its fair value.

Interest rates are expected to rise to 3 per cent due to the stronger economic momentum and higher inflation rates but they are not expected to affect growth.

“It (the overnight policy rate) will not choke the recovery process,” said Manokaran.

Inflation, meanwhile, is expected to rise to 2.5 per cent in tandem with improving economic conditions and potential adjustments to prices.

Manokaran said he expects the manufacturing sector to be the main growth driver this year, led by the electrical and electronics sector at 12.3 per cent growth followed by the services sector which is expected to expand by 7.1 per cent due to stronger demand arising from the positive wealth effect from the financial markets, stable employment conditions and rising income levels.

He also expects private consumption to grow at 4.5 per cent versus just 0.8 per cent last year.

“Private consumption is expected to rise on the back of improvements in the labour market, disposable incomes and consumer confidence,” said Manokaran.

He also sees exports and imports posting double-digit growth of 15 per cent and 16 per cent respectively in 2010 as well as a higher current account surplus of RM125 billion or 20 per cent of GDP.

The World Bank had on Monday released a report saying that Malaysia could grow by as much as 5.7 per cent this year but warned that growth could stall if economic reforms were not implemented.

MIER last week revised its GDP growth forecast for 2010 to 5.2 per cent from 3.7 per cent due to improving business and consumer sentiment. JP Morgan had earlier this month also revised Malaysia’s GDP growth forecast to 7.7 per cent from 6.8 per cent previously.

I will take these projections with a chunk of salt.