THE inflationary impact of the Goods and Services Tax (GST) that
will be rolled out in April next year will likely fade within two years
of its implementation. Malaysian Rating Corp Bhd (MARC) estimated that the GST will push the
headline Consumer Price Index (CPI) to above four per cent temporarily
and the inflation level will then normalise within two years, based on
the experience of Singapore, Australia and China.
Its chief economist Nor Zahidi Alias said the initial increase of
above four per cent was because inflation has been on a rising trend
with the government’s ongoing subsidy rationalisation measures. “Domestically, the possible pre-GST price rally will be among the key
determinants of the degree of price increases in the second half of the
year.” MARC expects the CPI to average around 3.5 per cent this year before edging up to 4.4 per cent next year. Inflationary issues will capture the attention of both the man on the
street and the authorities as the latter manoeuvres policies to deal
with internal and external sources of inflation.
“Externally, developments in global food and commodity prices will
have an important bearing on Malaysia’s CPI trend,” Nor Zahidi said,
referring to elevated global crude oil prices in the wake of rising
geopolitical risks in Iraq. The Food and Agriculture Organisation’s (FAO) Food Price Index,
which leads Malaysia’s inflation gauges, has rebounded since hitting its
trough in December 2012, keeping Malaysia’s food index and headline CPI
growth higher than the preceding year. “With the expected build-up in inflationary pressures, Bank Negara
Malaysia will be prompted to adjust its moneta-ry accommodation stance
to be ‘ahead of the curve’ and avert stronger-than-expected headline CPI
numbers in the near term.”
The agency expects the Overnight Policy Rate (OPR) to be nudged up by
25 basis points this year, with the possibility of another similar
hike. The high level of household indebtedness as well as a resilient
economic momentum on the back of a recovery in global demand have led to
the central bank’s hawkish tone in its policy meeting in May. On growth prospects, MARC said external demand is key to stronger
headline growth this year, although domestic demand will lend support. “Gross export growth on a three-month moving average accelerated to a
double-digit pace in the five months ended April, pushing its average
monthly trade balance to RM8.8 billion in the first quarter of the year from barely RM2.7 billion in the second quarter of last year.
The near-term prospects for the semiconductor sector also look more
encouraging, judging by the improvement in the United States
book-to-bill (BTB) ratio, which has climbed from its cyclical low in
October 2012. “Rising global chip sales, evidenced by double-digit growth rates
since February, will further benefit Malaysia’s electronics and
electrical sector going forward.” While consumer spending will likely remain relatively resilient with
a 6.8 per cent forecast this year, some moderation may take place due
to the anticipation of stronger inflationary pressures in the economy in
the second half, he warned. On the investment front, MARC expects private investment to remain a strong driver this year.
The Economic Transformation Programme has made respectable progress
since its implementation more than three years ago and remains exciting. “We believe that with reasonable costs of borrowing, together with
supportive government policies, private investment momentum will remain
vibrant in the near term,” he said, adding that private investment
growth estimate has been hiked to 12 per cent from 11 per cent
previously.
Source: NST Online
Thursday, 3rd July 2014
