Pace Of Growth Still Strong

By Eileen Hee

PETALING JAYA: The pace of growth in Malaysia is not expected to ease in 2008, but would remain strong as the resilient economy reaps the benefits of a robust domestic economy.

Public Bank in its October issue of Economic Review said the increasing trend and higher growth of the Leading Index (LI) in 2007 indicated that the Malaysian economy would “continue to remain strong and healthy in 2008.”

According to the bank, the LI, which predicts the pace of economic activity six to nine months ahead, showed a monthly growth 7.2% from January to July.

The index, which tracks eight key economic variables, showed a reading of 8.8% in July. It peaked at 8.9% in May this year.

“In absolute terms, the LI rose consistently from 138.5 in January 2006 to 153 in July 2007. From the high and rising growth in the leading index, it is not unreasonable to expect a higher GDP in 2008 compared with that of 2007.”

Earlier in the week, the Malaysian Institute of Economic Research (Mier) revised downward its forecast for the country's gross domestic productivity (GDP) next year to 5.4 % from 5.8%, citing external uncertainties.

However, despite the US subprime woes, roiling oil prices and inflationary pressures, the US economy could be headed for a soft landing. It has been reported that the US posted a stronger than expected third quarter GDP growth of 3.8%.

Public Bank also said that to gauge whether there would be an impending economic slowdown, a Coincident Index and Lagging Index would provide clues on the likely direction of the economy.

“While the ratios have softened in 2007 from its peak in January, they remain high. In fact, the ratios of the Coincident Index to the Lagging Index were significantly higher in 2007 compared to 2006.”

The bank said the high ratios indicated that the Malaysian economy would remain on an expansionary mode with GDP likely to be higher in 2008 than that of 2007.

RAM Holdings Bhd group chief economist Dr Yeah Kim Leng told Starbiz that favourable GDP figures for 2008 would premise on a positive external environment and strong domestic growth momentum.

Yeah, who sees a soft landing for the US, said that America's economy surprised the market with strong third quarter results amid subprime woes.

Should the global slowdown be more pronounced, the strong domestic growth momentum would be able to offset it, he said.

OSK research economist Sia Ket Ee remained optimistic on the economic outlook for the year ahead.

“Domestic sources of growth should be able to offset any external weakness arising from a weakening US economy,” he said, adding that smooth implementation of the 9MP and the projects in the various corridors would provide the support for a domestic-driven growth.