Press Release 2013

UOB: Stronger global growth in 2014 to benefit exporting economies in Asia

Malaysia's fiscal consolidation initiatives expected to address budget deficit progressively

Kuala Lumpur, 10 December 2013 - United Overseas Bank (UOB) today forecast that Asia's export-oriented countries will benefit from stronger demand as key global economies recover.

UOB's Senior Economist, Mr Alvin Liew, said that the demand for Asian exports will increase with the economic recovery in the United States (US), and a firmer US dollar. This will directly benefit countries with large export markets such as Malaysia, Singapore, Indonesia, Thailand and China.

Mr Liew said, "The US, Europe and Japan will continue to see economic improvement in 2014. With the positive data in the US, we foresee the US Federal Reserve beginning to reduce its bond-buying programme in the first half of 2014. Consequently, the US dollar will strengthen against most Asian currencies, although at a gradual pace, benefitting export-oriented countries in the region."

Mr Liew also expects more corporate investments flowing into Asia given the rising business confidence levels in Japan and a lower probability of tail-end risks coming out of Europe next year.

"Growth drivers for Asia remain strong and the region will continue to be attractive to foreign investments," he said.

Mr Liew noted that while federal budget issues in the US may recur early next year, they are not expected to have a significant or lasting impact on the country's growth outlook. However, quantitative easing (QE) tapering in the US and a potential liquidity outflow from Asia remain concerns for the next year. Nonetheless, Asian economies today have stronger economic fundamentals, including higher foreign reserves, and are therefore more prepared for any potential impact. Furthermore, the region is a driver of global economic growth, and will remain a destination for investment activities.

Positive impact of fiscal consolidation
Mr Liew expects that the implementation of tax reforms, subsidy rationalisation and other initiatives in Malaysia's Budget 2014 will help bring higher revenues, reduce gross development spending, and contain the fiscal deficit at 3.5 per cent of Gross Domestic Product (GDP). The new Goods and Services Tax which comes into effect on 1 April 2015 demonstrates the Malaysian government's resolve in reducing its fiscal deficits over time. The subsidy cuts in sugar and fuel prices that have already been implemented will further reduce the government's burden.

He also said that the move to raise the Real Property Gains Tax and the banning of the Developer Interest Bearing Scheme will help keep property prices in check. This may have a temporary impact on property demand but the move will ensure more sustainable growth in the long term by deterring speculators and preventing a real estate bubble.

"We expect GDP growth to strengthen to 5.2 per cent in 2014 from our forecast of 4.5 per cent for 2013. This will be supported by strong domestic demand, a rebound in exports and the recovery in global economies. We expect a broadly higher USD against the Asian currencies next year as a result of the QE taper. The USD/MYR will rise to 3.30 by the end of the second quarter of 2014," Mr Liew added.

Supporting the development of SMEs
Mr Liew said that the small-medium-enterprise (SME) sector is expected to continue growing in accordance with the SME Masterplan with the government's allocation of RM120 million and tax incentives to boost innovation and productivity. These initiatives will raise the sector's contribution to national GDP to 41 per cent by 2020 .

In support of the development of the SME sector, UOB Malaysia has facilitated the financing needs for Malaysian SMEs as well as foreign companies setting up business in the country, including those from the manufacturing, property, food and beverage, logistics and retail sectors. With a strong regional network across Asia, UOB Malaysia is also able to help customers facilitate cross-border deals and overseas expansion. The Bank's FDI Advisory Unit provides SMEs with expertise in setting up operations in a foreign country.