Sarawak not spared from global economic downturn

by Jasmine Chin jasminechin@theborneopost.com. Posted on December 23, 2011, Friday

KUCHING: As the gloomy outlook persists around the global economy, Sarawak despite the ongoing Sarawak Corridor of Renewable Energy (SCORE) programme will not be spared from the external headwinds.

SLOWER GROWTH: Image captures an overview of the Kuching city. Investments are expected to be postponed following the less than promising business sentiments premised on the gloomy global market outlook – Bernama photo.

An economist from RHB Research Institute Sdn Bhd (RHB Research) said that the state would see its growth trending on slower grounds, and foreign investments would not be flowing in as rapidly in the coming year.
“We are expecting gross domestic product to slow down to 3.6 per cent and this is premised mostly on macro-economic factors.  There is a lot of turmoil going on in the global market now and this will inevitably cause less than optimistic business sentiments. Despite the ongoing SCORE programme, Sarawak is still very much dependent on the export of its oil and gas as well as its natural resources.
“However, this is only a projection for the immediate term as I believe the Sarawakian state with its competitive energy rates offered to investors will seek to encourage an influx of investment in the long-run,” he said in a phone interview with The Borneo Post.
With a decelerating global economy putting the brakes on the local economic growth, he believed that the Bank Negara Malaysia (BNM) would most likely cut its overnight policy rates (OPR) by 25 to 50 basis points (bps) in the first half of next year.
“BNM has shifted its focus from inflation to growth and we believe it will likely be proactive and begin cutting interest rate early next year should the need arise. We expect it to trim the OPR by 25 to 50bps in the first half of the coming year, if global economic conditions worsen.
“The statutory reserve ratio of banks however will likely remain unchanged at four per cent of total eligible liabilities in the months ahead, as short-term capital has reversed into outflows gradually since June this year,” he pointed out.
In his view, following the peak of the inflation rate for the past 11 months, he believed that the rate would most probably moderate to an average of 2.8 per cent next year from the estimated 3.3 per cent initially noted.
“Similarly, month-on-month, the rate of inflation had eased to 0.1 per cent in November, after growing at a faster pace of 0.2 per cent in October and end of September. This comes to show that price pressures have abated somewhat but will remain sticky downward given the resilient domestic demand.
“On the whole, in the first eleven months of this year, inflation rate had picked up to 3.2 per cent year-on-year from 1.7 per cent the corresponding period of last year. As such, we believe inflation has reached its peak and we are expecting it to moderate to an average of 2.8 per cent next year,” he highlighted.
This was on account of slower global economic growth that would most likely translate into a more moderate increase in demand and lower price pressure.
He however, pointed out that should the government reduce its subsidies for energy, inflation could stay at an elevated level.
“If the government reduces its subsidies for energy, from fuel to gas supply for power plants and industries, once every six months according to the plan, that will lead to higher input costs and part of it will likely be passed on to consumers. Also traders are likely to take advantage of the situation to raise other retail products and services prices,” he said.