MALAYSIA'S economy is expected to expand at a much slower clip this year, due to global uncertainties surrounding the depth of the slowdown in the US.A Business Times poll showed that on average economists are looking for modest growth of 5.62 per cent this year, with domestic demand driving this growth.
They also expect economic activities to accelerate once the "political dust" from the recent general election is settled.
The country's gross domestic product (GDP) is also set to improve in the second half of 2008 when the fiscal stimulus following the US Federal Reserve's aggressive interest rate cuts provide some boost to the US economy.
The Finance Ministry has projected a six per cent to 6.5 per cent growth for 2008, but most of the economists including Affin Investment Bank economist Alan Tan expect Bank Negara Malaysia to forecast lower growth projections in view of the external uncertainties.
Bank Negara will announce its economic growth projection for the country for 2008 in its annual report released today. The economy grew at 6.3 per cent last year, the strongest showing since 2004, on higher domestic demand.
"In view of the global uncertainties, Bank Negara is likely to scale down the GDP growth forecast to between 5.5 per cent and six per cent," said Tan.
"We believe it will highlight downside risks to the growth projection including the US subprime mortgage crisis and credit crunch problems that could decelerate US consumer spending, forcing the economy into a sharp slowdown," he added.
Other downside risks to Malaysia's GDP growth forecast are high oil prices, rising inflation, weakening US dollar outlook as well as possible delays of major government projects and investment spending by the private sector with the new political landscape, he said.
Action Economics director of Asian Economic Forecasting David Cohen said first quarter 2008 showed economies in the region were holding up well despite the drag from the US economy.
Most of the economies in the region such as Singapore, the Philippines and Indonesia have been registering a five per cent GDP growth, he said.
However, these economies have not decoupled from the US economy and will experience slower growth this year.
The Asean economies stand to benefit from the higher oil prices despite inflationary pressures building up.
On inflationary risks, economists polled expect the country's consumer price index to grow at 2.96 per cent year-on-year, but the figure may increase depending on when the government decides to cut fuel subsidies.
Aseambankers chief economist Suhaimi Ilias said against a backdrop of escalating global food prices, Malaysia would need another year of relief before the move to cut fuel subsidies is considered.
"Domestic demand will continue to drive the economy. Although exports are expected to have a better showing than last year, it will not be sufficient and will still pose a challenge," he said.
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