PETALING JAYA - Malaysia's economic growth next year will likely be subdued, falling below the Government's target, as a result of fiscal consolidation, Nomura Securities Co Ltd predicts.
The Japanese financial services giant said it expected Malaysia's gross domestic product (GDP) growth in 2014 to remain at 4.5 per cent, compared with the Government's forecast for a 5 per cent-5.5 per cent GDP growth next year.
"We think the Government's assumption of 5 per cent-5.5 per cent GDP growth may be ambitious because of fiscal consolidation. We continue to expect a GDP growth of 4.5 per cent in 2014," Nomura said in its report.
Nomura lauded the recently announced Budget 2014 as a strong indication of the Government's commitment to fiscal consolidation, that is, reducing its fiscal deficit and debt levels, through key reform measures such as continued subsidy rationalisation and the implementation of the Goods and Services Tax (GST).
"These were the key ingredients to put the fiscal position on a more sustainable footing," Nomura said.
The financial-services group noted that while the reform measures highlighted in Budget 2014 could somewhat strain the country's short-to-medium-term growth, getting the fiscal priorities right were more pressing.
"Removing the fiscal overhang, which has been a persistent area of concern for Malaysia's economic prospects, may ultimately have a positive impact on longer-term growth," it explained.
In tabling the Budget 2014 last Friday, Prime Minister Datuk Seri Najib Tun Razak announced that the GST would be implemented on April 1, 2015. He also announced a lower allocation for subsidies at RM39.4bil next year, compared with RM46.7bil in 2013.