MIER set to cut economic growth forecast
Posted on 10 July 2013 - 05:37am
KUALA LUMPUR (July 10, 2013): Malaysian Institute of Economic Research (MIER) is set to revise its initial economic growth forecast for 2013 at a mid-year review next month on slumping exports and slower private consumption.
The think tank had in January projected that the Malaysian economy will expand 5.6% this year.
"Our export performance in recent months is a major concern,'' executive director Dr Zakariah Abdul Rashid said.
"It would be very difficult for Malaysia to achieve the targeted growth this year if exports continue to shrink,'' he told reporters when met at a conference yesterday.
Zakariah said the growth target would probably be lowered next month after reviewing the country's performance in the first half of the year.
He also said that the latest round of lending curbs by Bank Negara Malaysia announced last Friday would also have a "negative impact" on private consumption.
Exports in May slumped 5.8% from a year ago, worst than what most economists had expected as Malaysian exporters continued to struggle against weak global demand and softer commodity prices.
CIMB Research in a note last Friday predicts that exports growth to remain "soft" until August this year on weak external factors and seasonal slowdown during Ramadan fasting month, which starts today.
In his presentation yesterday, Zakariah noted that one factor that is holding back exports is the lack of "domestic value added" contents to products that are shipped from Malaysia.
"Malaysia is still poor in generating value,'' he said when comparing the export value of products shipped from countries such as Japan, South Korea and Poland.
Manufactured goods accounted for about 75% of Malaysia's total exports. This underlines the importance of the manufacturing sector to our economic growth.
One analysis suggests that Malaysia is still trapped in what experts called a "factory economy" situation. To move up the ladder to what is known as "headquarters economy,'' Malaysian firms need to develop ownership advantages such as indigenous technology that can be exported.
So what is hindering Malaysia's quest to become an exporter of innovation?
One expert pointed out the so called "flexible policy" on foreign workers, especially in the manufacturing sector as one of the stumbling blocks in moving up the value chain.
"This peculiar feature enables firms to hire and fire workers to manage volatility to maintain local equilibrium and also make manufacturers more reluctant to take the risky innovation route,'' said Professor Dr Tham Siew Yean, the deputy director at Institute of Malaysian and International Studies.
She said that Malaysia cannot afford to lose out in the manufacturing industry and called for the deepening industrialisation of the sector.
Tham highlighted the need to attract "the right type" of foreign direct investment into the sector and promote the development of human capital to encourage productivity growth in the manufacturing, as well as in the service sector.
"Whatever ails the manufacturing sector is also a constraint for the service sector,'' she said.
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