2010.08.1904:51:00UTC+00Malaysia's Growth Likely To Slow Further, Says Capital Economics

Malaysia's economic upswing will continue to lose momentum in coming quarters, but the risk that the expansion stalls is low, macroeconomic research consultancy Capital Economics said Wednesday.

Data released by the statistical office showed that gross domestic product rose 8.9% annually in the second quarter, with growth slowing from 10.1% recorded in the first three months of the year.

Ashira Perera, an economist at Capital Economics, said private sector spending should drive growth ahead as the support from government expenditure and exports fades. The economist noted that Malaysia's external demand looks set to weaken.

Nevertheless, exports growth should just slow rather than collapse. "We still expect above-consensus growth of 7.5% in 2010, followed by 5-6% in 2011," Perera wrote.

Commenting on the July inflation data, which showed that consumer prices rose 1.9% annually last month, the economist said the sustained economic upswing, as well as cuts to fuel and food subsidies, will probably lift inflation further in coming months. Capital Economics expects Bank Negara Malaysia to raise the key policy rate by another 25 basis points in the fourth quarter. "After that, BNM will probably stay on hold throughout 2011," the economist said.

Moreover, Capital Economics said the Malaysian currency ringgit may appreciate more by end-2010, although concerns over the global economic slowdown could well bring some slippage over the next three months or so. "Accordingly, we have revised our forecast and now expect the ringgit to reach 3.10 against the US dollar by end-2010, from 3.16 currently, followed by stability in a broad range during the course of 2011," Perera said.

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