According to Malaysian Rating Corp Bhd (MARC), external demand will be key to stronger headline growth in 2014 and that although domestic demand will lend support, it will, however, be to a lesser degree due to the expected build-up in inflationary pressures in the second half of the year.
“Going forward, although consumer spending will likely remain relatively resilient with our growth forecast of 6.8% in 2014, some moderation may take place due to the anticipation of stronger inflationary pressures in the economy in the second half of 2014,” said MARC in its report on the outlook for the second half of the year.
“Higher electricity tariffs and the price of natural gas will likely continue to amplify the effects of increasing energy prices on consumer price index growth in the second half of 2014.”
The rating agency also said the impending introduction of the goods and services tax in the second quarter of 2015 was expected to exert additional pressure because of the anticipated initial strong demand prior to the implementation, as households bring forward their consumption and the likelihood of profiteering activities that may take place before the implementation.
Alliance Research chief economist Manokaran Mottain expected inflation in the second half of the year to be greater due to further subsidy rationalisation by the Government.
“We are projecting a 5.3% year-on-year rise in gross domestic product. We don’t think it will hit 6%, mainly due to inflationary measures which will drag down spending.”
MARC, meanwhile, believes that the impact of GST on inflation will likely fade in the first two years after implementation, based on the experience of other countries, namely Singapore, Australia and China.