01 Jun 2010 | By: Mohamed Hairul Borhan

Singapore-based Oversea-Chinese Banking Corp Ltd (OCBC Bank) is projecting an economic growth of at least 6.7 per cent this year for Malaysia based on a strong rebound in exports growth and recovery in domestic consumption.

The bank's head of treasury research, Selena Ling, said a stronger ringgit will also help boost the economy through the lowering of input costs.

"We have revised our gross domestic product (GDP) growth forecast for Malaysia to 6.7 per cent year-on-year for 2010, in comparison with the 1.7 per cent contraction in 2009. 

The strong performance in the Malaysian economy in 2010 will be as a result of the robust exports performance so far this year."Similarly, recent data from the domestic front has also pointed towards a stronger rebound in domestic demand, pointing to a further boost to the economy," added Ms Ling.

She was speaking to reporters after giving an economic presentation on the global market and foreign exchange outlook to the bank's treasury customers in Penang on 14 May 2010.

Also present was OCBC Bank (M) Bhd head of global treasury, Gan Kok Kim. According to Ms Ling, inflation should remain modest around 2.6 per cent on-year in 2010, given that both the fuel price subsidy cut and the goods and services tax implementation have been postponed for now.

The labour market should also continue to improve, with the unemployment rate expected to improve to around 3.3 per cent at the end of the year.

It is anticipated that a further rise in commodity prices would continue to benefit Malaysia, as export earnings from the likes of oil and gas and palm oil are likely to surge even higher going into the remainder of the year.

At the same time, private consumption has sustained the improvement seen towards the end of last year, while the stronger ringgit and a better global growth outlook may spur a double-digit expansion in private investment.

Investors have zoomed in on Malaysia's affirmative action changes under the New Economic Model and she questioned the viability of other initiatives such as the country's potential to be the regional hub for Islamic finance.

"The Dubai fallout has certainly hit liquidity from the Middle East. Moreover, it is still a long shot before we see development in Islamic finance. Given how it has fared in the past couple of years, any potential competitive threat from Indonesia must also be considered,” she said.

Ms Ling was of the view that any structural or fundamental fiscal reform that may be adopted, such as foreign investment-friendly incentives, especially for high-technology industries, could aid the Malaysian government in efforts to attract potential investors.

"These measures coupled with the healthy rebound in the economy, should help improve the 2010 budget deficit to around 3.5 per cent and 5.5 per cent of GDP for this year, and mitigate concerns about Malaysia's budgetary health," she noted.

Courtesy of MATRADE-Singapore