Recently published research from Business Monitor International, "Malaysia Business Forecast Report Q4 2013", is now available at Fast Market Research

Boston, MA -- (SBWire) -- 08/21/2013 --Domestic demand in Malaysia should remain relatively resilient throughout the year, mainly driven by our view of a post-election rebound in GFCF growth over the coming quarters. Meanwhile, growing evidence that the Chinese economy is beginning to cool and signs of deteriorating economic conditions in Europe, continue to underpin our lacklustre outlook for external demand over the medium term.

Malaysia's budget deficit has increased from MYR4.5bn in Q412 to MYR6.1bn in Q113. This is closely in line with our forecasts for Malaysia's fiscal deficit to rise from 4.5% in 2012 to 5.0% in 2013 (due to proposed increases in welfare spending for the 2013 budget) before we begin to see a gradual narrowing of the deficit towards 4.3% and 3.6% in 2014 and 2015. Our forecasts therefore suggest that the government is very likely to miss its fiscal targets.

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We reiterate our view that inflationary pressures in Malaysia will be kept in check through 2013. Judging by the slightly hawkish tone coming from BNM's monetary policy statement in May, which indicate that policymakers continue to expect inflationary pressures to pick up on the back of strong domestic demand, we believe that a rate cut is out of the picture for now.

Major Forecast Changes

We have revised up our forecast for real GDP growth from 4.2% to 4.6% in 2013 to reflect the better-than-expected economic data in recent months.

Key Risks To Outlook

Malaysia's economic outlook remains vulnerable to external shocks. This is compounded by increased public spending on welfare subsidies in recent years. We caution that the government's failure to address its fiscal imbalances after the general election risks triggering a wave of downgrades by rating agencies on its debt.

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