#Economic Outlook* Malaysia 2014 GDP growth forecast at 5% to 5.5%

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KUALA LUMPUR (Oct 25): The Malaysian economy is expected to grow at a stronger pace of between 5% and 5.5% in 2014 on firm domestic demand and recovery in exports, according to the Economic Report 2013/2014 released by the Ministry of Finance.

This compares with the estimated gross domestic product (GDP) expansion of 4.5% to 5% in 2013.

Growth in construction and services sectors will continue to lead economic drive in 2014.

According to the MOF, strong fundamentals of the economy will support the nation's GDP growth in 2014.

"Domestic demand is expected to remain strong, and continue to be the driver of growth. Private investment is expected to continue to record a double-digit growth supported by accelerated implementation of on-going ETP (Economic Transformation Programme) projects.

"Given the improved external outlook and measures outlined in the  2014 Budget to boost exports, investment in the export-oriented manufacturing and services industries as well as agro-based industry are expected to increase," MOF said.

Gross export growth is seen at 2.5% in 2014, compared to an estimated 0.4% decline in 2013.

MOF said private consumption will remain strong on higher household income and stable job market.

Meanwhile, government or public investments will be mainly sustained by non-financial public enterprises in the oil and gas, utilities, transportation and telecommunication sectors.

The supply side is expected to see expansion across major sectors. The services and manufacturing segments are seen growing 5.7% and 3.8% respectively.

Meanwhile, the construction and agriculture industries are seen expanding 9.6% and 3% respectively while growth in the mining segment is expected to come in at 3.1%.

Growth in the services and manufacturing sectors will come on strong domestic consumption, higher tourist arrivals and external demand recovery.

"The strong performance of the construction sector is expected to continue, largely supported by the civil engineering and residential segments.

"Growth in the agriculture and mining sectors is envisaged to expand further supported by higher output of crude palm oil (CPO) and crude oil," MOF said.

According to MOF, macroeconomic management in 2014 will focus on private-led growth and domestic demand. This comes amid global uncertainties.

MOF said the government hopes to strengthen Malaysia's domestic foundations to achieve sustainable growth while sustaining public finances.

"The management of macroeconomic issues is crucial in realising the overarching objectives of the national development agenda which focuses on two major thrusts, which are the nation's growth and the well-being of the rakyat," MOF said.

MOF has listed five main strategies to achieve its goals. The government aims to stimulate investment, strengthen public finances, accelerate urban and rural development, prioritise citizens' well-being, and strengthen human capital.

Comprehensive effort is crucial in transforming and rebalancing the current economic structure to achieve strong, balanced and inclusive growth, MOF said.

"Although overall investment, particularly by the private sector has been increasing since the last four years, the nation still requires high investment to boost its potential output as well as provide job opportunities, particularly in high value-added, advanced technology and knowledge-intensive industries.

"Deficit reduction and prudent debt management are a function of good economic management and well-paced fiscal reforms…. the government will continue to consolidate its fiscal position in a firm, but measured way to ensure growth momentum is not undermined," MOF said.

Public finance stewardship is closely watched as the government aims to reduce its budget deficit as a percentage of GDP to 3.5% in 2014 from 4% in 2013.

Prime Minister Datuk Seri Najib Tun Razak said in the preface of the report that the government is planning gradual subsidy rationalisation. This comes with complementary measures to help vulnerable segments of the population.

Najib said savings will finance development programmes to raise national productivity and living standards.

"While supporting the growth momentum, we are fully aware of the need to be fiscally responsible. It was towards this end that we set up the Fiscal Policy Committee in June 2013," Najib said.

2013 2014
% growth % growth
Gross Domestic Product (constant 2005 prices) 4.5 - 5.0 5.0 - 5.5
Agriculture 2.7 3.0
Mining and quarrying 2.2 3.1
Manufacturing 3.2 3.8
Construction 10.6 9.6
Services 5.5 5.7
Source: Ecomonic Report 2013/2014 by Ministry of Finance

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