Malaysia - Moody's Analytics ups Malaysia, Indonesia GDP forecasts

KUALA LUMPUR: Moody's Analytics has revised Malaysia's and Indonesia's gross domestic product (GDP) forecasts higher as increased infrastructure investment lifted growth.

In its report, "Macro Round-up: South-East Asia Outperforms", Moody's Analytics, a division of Moody's Corp engaged in economic research and analyses, said even as export challenges persisted, the outlook for Asean was bright.

Its economist, Matthew Circosta, said an infrastructure investment drive was gathering steam.

"As in Mexico, governments in Indonesia, Malaysia and the Philippines are spending on roads, rail and schools ahead of parliamentary elections. Though some of this extra spending is politically-motivated, it is also necessary to meet the needs of rising populations," he said.

Circosta said cheaper borrowing costs had helped support the government investment.

He said borrowing costs for Indonesia's government had fallen nearly 100 basis points over the past year to 5.95 per cent, while those for the Philippine government had declined nearly 90 basis points to 5.02 per cent.

"Responsible fiscal management has helped lift credit ratings in Indonesia and the Philippines, further attracting foreign investments," he said.

He said unlike in the US, Europe and Japan, where interest rates neared zero had prevailed since the 2008-2009 crisis, central banks in South-East Asia had room to cut rates to stimulate growth.

"Rates haven't been slashed as much in this easing cycle as in 2008-2009 because of the lower starting point, but aggressive cuts haven't been necessary because economies are on more solid footing.

"Indeed, Malaysia, which has one of the lowest interest rates in the region, has kept policy unchanged since May 2011," he said.

Circosta said South-East Asia's outperformance in the first half highlighted the benefits and importance of rebalancing export-dependent economies towards domestic growth.

Thailand this week reported better-than-expected 4.2 per cent year-on-year GDP growth, following similarly strong performances from Indonesia (6.4 per cent), Malaysia (5.4 per cent) and the Philippines (4.2 per cent), he said.

He said Singapore, the regional economy most exposed to global currents, recorded slow growth of 1.9 per cent.

"Taken as a unit and stripping out the impact of the Thai floods, the Asean 5 are estimated to have grown at an annualised pace near six per cent in the first half of the year, significantly faster than the global growth rate around two per cent.

"Equity markets in the region have also increased more than developed benchmarks, a sign of growing investor confidence," he said.

A better world economy and strong domestic markets, he said, would allow South-East Asia's central banks to leave interest rates on hold for the next six to 12 months, keeping their powder dry if the global economy takes a turn for worse.

"Inflation is under control at present but will rise in the coming year as demand-driven price pressures intensify and drought in large agriculture-producing nations pushes up food prices," he said.

Bernama

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