Expect steady but unspectacular growth

Focus MALAYSIA WEEKLY ISSUE 055

THE WEEK OF DECEMBER 21 – DECEMBER 27, 2013

Review 2013 / Outlook 2014

By: FocusM

The Malaysian economy has proven to be resilient over the years, being diversified with sectors such as banking, manufacturing, plantation, construction, oil & gas (O&G), automotive and retail and services being the pillars driving economic growth.

However, 2013 has been something of a mixed bag for all these sectors and 2014 is expected to have its fair share of challenges.

The banking sector remains the vital cog that keeps the economy and businesses ticking smoothly.  However, some headwinds in the banking environment may moderate growth next year.  Retail loan growth could slow down on the back of easing  consumer spending from rationalisation of subsidy and responsible lending measures to address household debt.  Increased competition will result in margin compression while asset quality may come under pressure from inflationary pressure.  However, the sector should continue to deliver improved profits though the pace of growth is expected to moderate when compared with recent years.

This year has been a good one financially for companies involved in the O&G industry.  More than RM34 bil worth of contracts were awarded to local O&G companies in 2013, three times that of 2012.  the good times are likely to continue in 2014 due to ongoing capital expenditure for oil exploration.  Much of the largesse will come from Petrolium Nasional Bhd (Petronas).  Its RM300 bil five-year capital expenditure plan means it has RM150 bil to spend over the next two years. Translating into higher revenue for local O&G players.

This year has not been a stellar one for the plantation sector, one of the country’s largest revenue earners.  The average price for crude palm oil (CPO) was RM2,350 per tonne, which is 15% lower than that of 2012.  Volatile commodity prices coupled with moderate growth of the global economy could well weigh down the sector in the coming year.  The bright spot for the sector is the recent upward trend in CPO prices, lower palm oil inventories in key producing and consuming countries and implementation of biodiesel programmes in Malaysia & Indonesia, the world’s top palm oil producers.

The construction sector, which has significant multiplier effects on economic growth, is expected to be robust in the coming year.  It will be buttressed by the high-impact construction projects undertaken by the government like the Klang Valley Mass Rapid Transit project (MRT) as well as private-sector highway projects.  The key challenge faced by the sector in 2014 will be the manpower shortage, particularly foreign labour from countries such as Indonesia.

For the retail sector, there has been a slow down in the retail sales growth in 2013 as reported by Retail Group Malaysia (RGM).  This is due to the rising cost of living and reduced purchasing power following the increasing prices of goods and services, and higher borrowing cost.  However, industry players are hopeful the retail sector will remain strong despite the rising cost of living.  They are also optimistic that Visit Malaysia Year 2014 and the 1Malaysia Mega Sales will drive the sector’s growth.

The various industry captains as well as analysts that FocusM spoke to are quietly confident that the country will be able to ride out the headwinds in 2014 and experience a year of steady by unspectacular growth. FocusM