MALAYSIA is likely to witness a potential rebound in domestic investment by both the private and public sectors this year after experiencing declining capital investments following two economic downturns in the past 15 years.
Economists contacted by StarBiz believe that this year, the private sector would take the leading role in domestic investment with the government still providing attractive stimulus packages to pump prime the country's economy.
MIDF Sisma Securities economist Azrul Azwar expects solid profit recovery among Malaysian companies, which are now leaner compared to the pre-crisis period, could pave the way for higher capital expenditure.
The research unit has forecast the overall performance of public-listed companies to record an impressive net earnings growth of 32.5% to RM25.19bil this year against 3.9% last year.
This solid profit recovery in general will be followed by anticipation of higher capital expenditure, especially when lean businesses with nothing much to trim off will ride on an expansion trail again and set to replace or upgrade their existing facilities and equipment.
Azrul added that these increased investment activities, which we project to expand by 6% this year from a marginal growth of 0.9% last year, as well as the inventory replenishment will be among the major growth drivers.
He said investment had bottomed out with the resumption of capital spending in the third quarter of last year by 2.6% year-on-year after four consecutive quarters of decline.
He expects, however, that the government, which previously had to come up with gross development expenditure through both its Budget packages and other stimulus packages to pump prime the economy, will put in somewhat lesser fiscal injections this year.
Another stimulus package is expected to be announced by the government next month.
The Budget 2003, tabled in Sept 20 last year, focuses on four strategies to increase domestic investment in all sectors with growth potential: identifying and venturing into niche areas in the services, agriculture and manufacturing sectors, strengthening public sector financing, enhancing efficiency of civil service, and nurturing a progressive and harmonious society.
Of the total RM109.8bil budget allocation, RM34.5bil is allocated for operating expenditure and RM36.9bil for development expenditure.
On another note, the projected global rebound in the second half of this year will also be reflected in higher flows of foreign direct investments that will translate into huge capex as the global corporate earnings recession come to an end.
In fact, Malaysia's ranking in the latest AT Kearney/Foreign Policy Magazine Globalisation Index as the world's most attractive investment site in terms of competitiveness nudged up two notches to 18th position this year from 20 in 2002.
An economist with Mayban Securities also expects investment performance this year to improve due to the narrowing GDP output gap based on last year's estimate of a 0.2% increase in investments against labour in manufacturing industry, which has contracted by 0.7%.
There are signs that the country's actual gross domestic product (GDP) compounded annual growth is set to rise faster than the potential GDP output this year one of the indicators of a stronger footing economy, he added.
During the economic boom from 1992 to 1997, the actual GDP growth rate was higher at 9.2% compared to potential output of 8.2%. However, from 1998 to 2001, the potential GDP output was 3%, which is higher than 1.9% in actual GDP.
Meanwhile, another economist with a local stock broking house said: Despite the good prospect for domestic investments this year, the growth rate is still expected to be fragile and flattish at 2% to 3% below the gross domestic product (GDP) level, barring any unforeseen circumstances.
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