Forecast of 6% growth for Malaysia's GDP

KUALA LUMPUR, Jan 8 (Bernama) -- Citicorp Investment Bank (S) Ltd is maintaining its forecast of six percent gross domestic product (GDP) growth for Malaysia this year, to be driven by strong domestic demand with increasing emphasis on investment rather than consumption.Its Asia Pacific economic and market analysis vice president, Zheng Kit Wei, said firmer signs of investment revival have emerged but downside risks remained considerable.Despite expectation that exports may soften further on downshifting US growth prospects, he said Malaysia's economic corridors launched last year could be the driver for this year's growth.Even though the economic corridors are private sector-led investments, Zheng said there was a chance of public investment spending being ramped up further if private investments failed to pick up as anticipated."The government could ramp up development spending to aid the investment revival if private investment fails to pick up as anticipated. High oil prices will give the government ample space to increase development spending, especially if fuel subsidies are removed," he said.However, Zheng warned that inflation remained a key risk, with fuel price hikes likely to be implemented after the general election, echoing the widely held view of analysts of election being held within the next three months."In the worst case scenario, the consumer price index (CPI) could go up between 3.5 and four percent this year should the quantum of fuel price hike turn out to be larger than expected," he said."Right now, we are looking at a relatively modest quantum of increase, around 10 to 15 percent, which translates to around 20 to 30 sen. But given that crude oil price has already reached US$100 per barrel as opposed to budgeted assumption of around US$75 per barrel, I think we cannot rule out the possibility of a higher quantum of increase."According to him, the government will probably prefer to stagger the oil price hike.Citicorp has raised its inflation forecast to 2.8 percent from 2.5 percent, with risks tilted to the upside, Zheng said."But should inflation persistently step out of its comfort zone, Bank Negara Malaysia may be compelled to raise interest rate in the second half to keep inflation expectations under control," he said."However, we think that central bank may prefer a stronger currency to combat imported inflation."Citicorp, which forecast the ringgit to reach RM3.18 against the US dollar by end of this year, said over the longer term, the local currency will continue to appreciate gradually on the back of a weaker US dollar.BERNAMA