KUALA LUMPUR: Malaysia's economy may expand by as much as 6% next year, double that of the government's forecast of between 2% and 3%, said a global investment banking group.
UBS Ltd managing director for global economics Paul Donovan said that was achievable given his expectation, among other things, that the country's industrial production would grow by more than 11% next year from this year's low base.
"Malaysia may be the leader of growth in the region (Southeast Asia) next year due to fewer constraints to growth," London-based Donovan said, referring to Singapore's weakened financial sector and Thailand's political turmoil.
He said the high 6% growth for Malaysia would not be out of line with regional growth, but it was dependent on an expected 3.6% growth for the entire global economy.
Donovan touted the fact that Malaysia's third quarter (3Q) gross domestic product (GDP) that contracted by a smaller annual rate of 1.2% that was above consensus expectation of an over 2% contraction, was well within UBS' forecasts.
UBS' GDP growth forecasts for Indonesia and Singapore next year are "in the high 4% or low 5%," he said at a roundtable conference with the media here yesterday on the global economic outlook. For Thailand, the Swiss investment bank is forecasting a 6% GDP growth next year.
Nonetheless, he warned that higher economic growth did not necessarily mean an improvement in the stock markets. "It is increasingly common for equity markets to diverge from the performance of the economy as a whole," he said, citing Hong Kong as an example.
He said the expected recovery in Europe, the US and Britain would "be sponsored by a famous sports brand" to be in the form of a "swoosh-like logo seen on its athletic shoes", while Asia and Malaysia were expected to make a V-shaped recovery.
He said concerns of a slow recovery in US consumption were over-played. Many analysts have said US consumption would recover at a very slow pace due to present higher unemployment and a higher savings rate.
Donovan said despite an unemployment rate of 10%, US government spending was providing a measure of job security for the rest of the population who were still employed and helping to sustain consumption.
He said US government statistics showed that in 3Q this year, personal savings rate had grown to 4.5% of disposable personal income from above 3.5% in 4Q last year. The rate was at about 5% in 2Q this year. It stood at just above 1% in the first quarter of 2008.
Donovan also said the average wage in the US was still rising modestly this year, which would also mean into higher consumption.
He expected US consumption to grow at a steady rate of 2.2% next year translating to a 2.6% growth in the US GDP.
Donovan said his institutional clients were already "fully invested" in the stock markets, while individual investors were still cautious and currently overweight on cash.
To a question on Malaysia's drive to achieve a high-income economy, Donovan believed that education was the long-term solution.
"A more educated workforce at all levels, can in a sense be more productive being able to perform more complicated tasks... an inquiring research base that leads to innovation, whose value can be captured by the economy," he said.
He added that "this is not something that happens overnight". He pointed out that even Japan's economy was constrained by being less innovative than it could be.
Meanwhile, speaking of the Malaysian stock market, UBS Securities Malaysia Sdn Bhd managing director and head of Malaysia equities Leong Fee Yee said the current FBM KL Composite Index had an upside of under 10% and any additional upsides would depend on whether the strong corporate earnings growth in 3Q this year would continue into 2010.