M'sian economy to grow 5pc in 2014

KUALA LUMPUR: The Malaysian economy is expected to grow by five per cent next year from the 4.6 per cent forecast for 2013, buoyed by strong sustained domestic demand, says MIDF Amanah Investment Bank Bhd.

Its Chief Economist Research Development, Maslynnawati Ahmad, said the domestic demand would continue to be supported by growth in wages and a stable employment outlook.

She said the expected recovery in the external demand would provide a boost to the economy.

"The export sector has been volatile this year but we expect it to pick up next year due to the recovery in the US," she told reporters after the media briefing on Market and Economic Outlook for 2014 here today.

Maslynnawati said all components of exports, such as electrical and electronic products, as well as commodities, were expected to be firmer next year.

Meanwhile, Malaysia's inflation rate was expected to edge up to 3.5 per cent to four per cent next year from 2.1 per cent in 2013.

As of November, the inflation rate stood at 2.9 per cent; it rose 2.8 per cent in October from 2.6 per cent in September.

She said inflation would tick up next year on the back of electricity tariff increases, even though the electricity accounted for just three per cent of the Consumer Price Index basket.

"Second round effects would soon appear, albeit at a gradual pace. We expect the food and non-alcoholic beverages index would resume upward trend in the coming months especially with the upcoming festivities," she said.

MIDF also predicted that Bank Negara Malaysia (BNM) would raise its overnight policy rate (OPR) only if there is strong 'demand-pull' inflation.

Head of Research Department, Zulkifli Hamzah, said the OPR would probably move in the second half of next year.

"But having said that, the electricity tariff and toll rate would probably go up, so raising the OPR is only going to add to the increasing cost of living.

"If possibe, BNM may not raise the interest rate and stay it at three per cent," he said.

It was reported in a daily newspaper that the central bank will raise the OPR from three per cent to 3.5 per cent in the second half of 2014.

The OPR has stayed at three per cent since March 2011. Any change will affect other rates, such as the base lending rate and foreign exchange rate.