THE Malaysian Institute of Economic Research (Mier) has upgraded its 2003 gross domestic product (GDP) growth forecast for the country to 4.3% from 3.7% following the early containment of the SARS outbreak and the recent surge in industrial output which indicated an unexpectedly rapid upturn for the manufacturing sector.
The institute also maintained its GDP growth forecast for 2004 at 5.4% against the backdrop of an improving global economy and calmer geopolitics worldwide.
The sizable upward revision had put Mier’s forecast “within striking distance” of the government’s 4.5% growth projection, said the institute’s executive director Dr Mohamed Ariff in Kuala Lumpur yesterday.
The economy had grown by 4.2% last year and 4% in the first quarter of this year.
Ariff cited positive factors like the shorter-than-expected Iraq war and early containment of SARS as some of the primary reasons for the revision, the second in four months. Mier's current forecast, however, is still below its original GDP growth estimate of 4.7% made last December. That figure was subsequently revised downwards to 3.7% in April this year due to the SARS outbreak.
Also contributing to the institute's current, perkier outlook was the government’s RM7.3bil economic stimulus package announced in May which was much larger than the RM3bil originally expected.
Ariff said that despite gloomy predictions following the SARS outbreak, the country’s second-quarter growth “should be around 4% – somewhat similar to the first quarter.” And in the second half of the year, the economy would grow by 5% or more, boosted by substantial pent-up demand, he predicted.
Ariff said the decline in the services sector would be compensated by the increased contribution from the manufacturing sector where the industrial production index (IPI) had been rising at “an incredible and unexpected pace.”
He said it was “surprising” to see the very favourable industrial output numbers as they appeared inconsistent with much of the recent economic data like those on the import of intermediate goods and bank lending to the manufacturing sector, both of which were contracting, and on manufacturing exports which registered no growth.
Nevertheless, said Ariff, the positive growth in the IPI of 16.2% in May following rises of 10% in April and March could indicate that manufacturers were building up their stocks in anticipation of a much better second half.
Meanwhile, statistics released yesterday showed the country’s manufacturing sales had jumped by more than 5% in May compared with the same month last year.
The Mier said that both its business conditions index (BCI) and consumer sentiment index (CSI) were also indicating better times ahead. The BCI rose to 104.9 in the second quarter, up 5.6 points from the first quarter, while the CSI grew 1.7 points quarter-on-quarter to 106.9.
The BCI survey found businesses looking to higher production ahead of larger local orders although export orders were still seen as weak.
Consumers, for their part, were anticipating an improved financial and employment outlook in the third quarter. “The economic package announcement unquestionably buoyed sentiment,” said the Mier report.
Looking ahead, the institute said that a recovery in the United States and exports generally would help the Malaysian economy in the second half of the year.
It estimated real exports would grow by 5%, up from 3.6% in 2002, as the global economy recovered moderately. Real imports were estimated to grow by 4.4% compared with 6.2% last year.
It said private consumption would grow by 4.6% in 2003 from 4.2% last year “on the back of slightly higher disposable income, the rising stock market and a rebound in confidence.”
Private investment would also recover moderately with a growth of 5.5% compared with a fall of 6.1% in 2002 as the corporate sector regained strength and business confidence grew, the institute added.
Mier said foreign direct investment inflows were also expected to improve after global uncertainties over the Iraq war and SARS epidemic had been resolved.
Public consumption could be expected to grow by 3.5% in 2003, slightly higher than earlier estimates in view of the additional expenditure arising from the stimulus package, but down from 13.8% in 2002, the report said.
It added that public investment would remain steady by growing at 4.5% in 2003, comparable with the 4.6% growth last year, due to higher spending on infrastructure upgrading.