January 31, 2013

RAM-Into the Looking Glass

Mirror,Mirror
As usual, we have the optimists and then the doomsayers.

What will 2013 be like  after the year is over?

Will there be disastrous world events with butterfly effects on our economy? Will the impending elections paralyze investment?

This is RAM Berhad through its looking glass.

The economy is expected to grow by 5.3% year-on-year in 2013 before accelerating to 5.8% next year on robust domestic demand and the gradual revival of external environment.
Domestic fiscal policy is  expected to remain accommodative as the implementation of key projects related to the Economic Transformation Programme  to pick up speed during the year.
Medium-term growth projection for the country ismaintained a 5.5% to 6% , supported by a stable expansion of the underlying factors of production.
As for domestic private consumption, it is anticipated to chart healthy growth due to favourable labour-market conditions instrumentally aided by a slew of Government initiatives and handouts.
RAM expects  that with an  improved business environment and relatively accommodative interest rates, private investment will expand further.
RAM is expectant that global conditions will gradually recover this year as policymakers in systemically important economies adopt an accommodative stance in an attempt to combat their respective structural deficiencies.
Malaysia’s export performance is expected to improve, in line with the revival of certain advanced economies. Similarly, import growth will likely be sustained by the resilient domestic economy, so they predict.
RAM foresee a fiscal policy that remains supportive of economic activity while the growth of public expenditure should moderate to meet the Government’s longer-term fiscal-consolidation objectives.
RAM notes the larger role of the “public-private partnership” method of financing in funding various development projects.
According to RAM's economists,“Conversely, the nation’s current-account surplus is expected to narrow as the acceleration of domestic investment closes the private sector’s saving-investment gap and increases imports."
They added that domestic monetary and financial conditions will remain relatively stable this year while inflation would likely increase at a modest pace due to healthy domestic demand conditions.
As such RAM sees  inflation to be moderate in the short term, with certain recently implemented policies  exerting some longer-term upward price pressures, The foresee the central bank  likely to adjust upwards the benchmark interest rates by 25 basis points this year from 3%.
[I have yet to see BNM in such a mode for a long time! Mostly it played 'chicken'.]
RAM opines that the ringgit might be more volatile in the short term due to global risk aversion but would retain considerable upside potential because of the currency’s strong fundamentals.
Meanwhile, they expect the global economy to expand by 3.5% this year largely due to growth from the emerging economies, with advanced economies expected to continue with their fiscal consolidation.
RAM's caveat:  They assume minimal occurrence of and impact from negative demand shocks in the advanced economies, along with limited disruption to global trade and supply of essential commodities.” 
Finally, this rating agency expects the US economy to accelerate to a pre-crisis growth pace of 2.5%, Europe to stagnate due to the enforcement of the European Fiscal Compact, which would improve the short-term sustainability of public finances  at the expense of immediate economic growth, and 8.1% growth in China from intra-regional trade even as global economic weakness weighed on the country’s economic expansion.
Do you believe RAM?
I think like most rating agency, they tread the middle path with all provisos and caveats right to the hilt!


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