BANK Negaras gross domestic product (GDP) growth rate forecast for the country remains at 4.5% for now but could be weaker due to external uncertainties, while interest rates are currently at appropriate levels said its Assistant Governor Datuk Latifah Merican Chong.
She said the GDP growth forecast for Malaysia would be revised later in the year as a clearer picture emerges, in response to a question raised at the MCA National Economic conference yesterday on whether the Iraq war and outbreak of severe acute respiratory syndrome (SARS) would affect the accuracy of Bank Negaras forecast.
Although she did not specifically identify the magnitude of any GDP growth revision, Latifah warned that economic growth would be lower if the impact of the external sector resulted in uncertainties which deferred investments and consumption. However, she said Bank Negara had the policy flexibility to deal with difficult economic situations brought about by events such as the war and SARS. We will use those instruments if and when necessary, she said.
On interest rates, Latifah said Malaysia currently had one of the lowest rates in the region and as inflation rates were also low, there was little threat of interest rates rising. The current rates are supportive of economic growth, she added.
Recently, economists and analysts have begun cutting their economic growth forecasts for Malaysia to between 3.5% and 4%, down substantially from initial estimates of up to 5.8%.
Analysts have said the outbreak of SARS and the Iraq war, which had resulted in lower export growth coupled with declining tourism and weaker private consumption, would contribute to a bleaker economic picture for the country. Some economists have estimated that the banning of tourists from China and Hong Kong could cost the country up to RM2bil in lost revenue.
The implication is going to be domestic demand? the retail sector, restaurants and related sectors will be affected, an economist was quoted by AFN news agency as saying.
Bank Negara had been pinning its hopes on domestic demand as a driving force for economic growth this year.