Tuesday, August 28, 2007

StanChart economist upbeat on 6% growth target

TheEdgeDaily

KUALA LUMPUR: Standard Chartered Bank (StanChart) is optimistic that Malaysia is on track to achieve its 6% growth target this year amid volatility in the global equity markets following the US subprime mortgage crisis.

While there were downside risks to the 6% growth target, StanChart was still expecting the economy to grow “on” or above trend”, its regional economist Tai Hui said, adding that anything above 4% to 5% was considered as “above trend”.

“Exports had been challenging for Malaysia in the first half (1H) of the year. We were looking forward to a rebound in the 2H as the electronics and electrical sector recovers, but it seems recovery has been delayed because of latest concerns in the US economy.

“So, that means Malaysia still has to depend on the domestic drive to achieve the growth target,” Tai told The Edge Financial Daily.

Although StanChart was cautious, the situation in the US has thus far not affected Malaysia’s export performance, he said.

For example, there was no significant change in the order book of Malaysian companies exporting to the US for the Christmas season, he said.

“Even if Malaysia does miss the 6% (growth target), I wouldn’t be worried because Malaysia is still above trend,” he added. Tai also said Malaysia’s fiscal policy would still be expansionary and StanChart had projected another year of “above-trend growth” in 2008 as Malaysia’s economy was expected to expand by 5.5% to 6%.

On the current subprime mortgage debacle, Tai said it could persist for some time and the market sentiment was still fragile.

According to him, the real issue was not the lack of liquidity in the US market but the case of liquidity not reaching “the right place”.

“That’s why we think the US Federal Reserve didn’t need to cut rates,” he added.

He said the Malaysian equity market was affected despite lack of exposure to the US subprime market mainly because of increased risk-aversion among investors.

Some funds were required to liquidate some of their positions and this led to the sell-off in Asian markets, he said.

On inflation, Tai said it was expected to increase to 2.2% by year-end due to a buoyant consumer sentiment in the country.

As such, Bank Negara Malaysia (BNM) was likely to hold the current overnight policy rate of 3.5% until mid-2008, he added.

He said BNM had to maintain a balance between the need to encourage growth and to contain inflation at the same time.

On the ringgit, Tai said StanChart was positive on its medium-term outlook as the government had emphasised that the gradual appreciation of the ringgit would not hurt exports, and this enhanced investors’ confidence.

The ringgit was expected to gradually appreciate to RM3.45 to the US dollar by year-end before strengthening further to RM3.30 in 2008, he said.


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