KUALA LUMPUR: Economists are confident that Malaysia will continue its growth trajectory next year with the Gross Domestic Product (GDP) set to expand by 4.50-5.3 per cent from 4.5-5.0 per cent this year.
Growth will be buttressed by continued fiscal reforms, reductions in the budget deficit and financial discipline, leading to economic expansion despite external challenges.
Malaysian Rating Corp Bhd (MARC) Chief Economist Nor Zahidi Alias said rising consumer prices would be a key concern for consumers in tandem with the government's commitment to strengthen its fiscal position.
The government is more optimistic with the 5-5-5 per cent growth projection next year from 4.5-5.0 per cent this year on resilient domestic demand, improving external environment, coupled with higher investment inflow into Malaysia.
Trade figures are also encouraging for the economy, with exports continuing their growth trend at 1.6 per cent in 2014 on improved demand for products and electronic items.
The World Bank in its recent Malaysia Economic Monitor expects Malaysia's export growth to be driven by higher energy commodity and petrochemical production as new investments start to come online.
January-October trade rose this year 3.4 per cent to RM1.3 trillion from RMRM1.09 trillion last year, with exports rising 0.9 per cent to RM591.8 billion, partly due to aggressive promotional activities undertaken by the Malaysia External Trade Development Corporation (Matrade).
The top five trading partners during the period were China, Singapore, the European Union, Japan and the United States.
Economists also said overall revenue is set to increase with the rationalisation of fuel subsidies and the hike in electricity tariff effective Jan 1, 2014.
They said this would have a modest impact on the economy, adding that trade prospects would be brighter with the recovery in the global economic front, which should offset weaker domestic demand.
The World Bank said stronger performance in advanced economies is widely expected to be accompanied by a "tapering" exercise of the US' quantitative easing.
The US Federal Reserve had announced that it would reduce its US$85 billion a month in bond purchases by US$10 billion beginning January 2014.
The bond-buying, also known as quantitative easing programme, was launched 15 months ago to kick-start growth in the world's largest economy.
Under Prime Minister Datuk Seri Najib Tun Razak's stewardship, the economy has drawn a slew of projects under the Economic Transformation Programme (ETP).
The ETP has attracted RM220 billion worth of investments in three years of its implementation, which is projected to contribute RM144 billion to the Gross National Income (GNI).
The national transformation programme has also created 435,000 new jobs and generated a knock-on effect that will catalyse the larger economic activities in the country.
Pertinent is the domestic and international recognition of government measures to boldly enforce the gradual subsidy rationalisation which will ensure sustainability.
International rating agencies Moody's and Standard and Poor's have revised upwards Malaysia's outlook based on fiscal consolidation, favourable debt structure, high level of domestic savings which will ensure economic resilience accompanied by price stability.
"The balance of payments remains healthy," Moody's said in a recent report.
Standard and Poors expects Malaysia to remain a net creditor, given its strong balanced sheet, open and competitive middle-income economy and considerable monetary flexibility.
Also, Malaysia's economic policies are said to be pragmatic and efforts to enhance transparency and corporate governance has improved business environment.
Undoubtedly, it is clear that Malaysia has pursued responsible management to strengthen fiscal position for long-term sustainability, stability and growth.
Against such a backdrop, Nor Zahidi said: "The challenge for the government is to balance the need to consolidate its fiscal position and trim down debt level to ensure that Malaysians will not be burdened by the rising cost of living from rising consumer prices.
Indiscriminate subsidies should be avoided, said Nor Zahidi, adding that subsidies targeted for low-income groups were necessary but on a conditional basis.
Echoing a similar sentiment was World Bank Senior Economist Frederico Gil Sander who said the move towards more targeted transfer in lieu of fuel subsidies was a positive one.
An encouraging sign is that political risks have subsided after the 13th General Election in May while a rejuvenation of fiscal reforms will likely result in positive sovereign rating action.
In supporting the growth momentum, the government formed a Fiscal Policy Committee in June as the premier body for fiscal management and play a leadership role in strengthening fiscal position to ensure fiscal sustainability and macroeconomic stability.
The investment momentum is expected to accelerate from several high impact projects under the Government Transformation Programme and ETP, including the MY Rapid Transit, Light Rail Transit, as well as oil and gas projects, will continue to spur the economy.
Nomura Singapore Ltd Executive Director and Economist for Southeast Asia, Euben Paracuelles said the fiscal reforms are clear indications that the Malaysian government is getting its act together to address weak fiscal position.
"I think there is still a lot of scepticism in terms of the ability to push the fiscal reforms but we're optimistic the government will execute them and also the electricity tariff hike effective Jan 1, 2014.
"Fuel price increases have also been managed very well," he said.
AmResearch Sdn Bhd said the subsidy bill would fall by 15.6 per cent or RM7.3 billion year-on-year to RM39.4 billion next year, mainly derived from savings of the recent price adjustments for fuel and sugar.
Currently, total savings from the petrol pump price adjustments and abolishment of sugar subsidies will amount to about RM3.8 billion in 2014.
"Hence, we do foresee further price rationalisation amounting to RM3.5 billion next year, out of which RM1.7 billion could potentially come from another round of petrol pump price increase," it said.
Allocation for fuel subsidy, including cash transfers, would likely increase to RM28.9 billion in 2013 from RM27.9 billion in 2012 as oil prices remain high, averaging at US$98.02 per barrel in the January-November 2013 period against US$94.05 per barrel in 2012.
Minister in the Prime Minister's Department Datuk Seri Abdul Wahid Omar said the country's financial system remains strong and robust, with liquidity, non-performing loans ratio and capital ratios at a strong level.
However, higher inflation is another consequence of fiscal consolidation.
Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz has said inflation is likely to reach three per cent next year.
Inflation measured by the consumer price index rose 2.9 per cent to 108.6 in November from 105.5 registered in the same period last year. -- Bernama