KINIBIZ On the back of strong fundamentals in the Malaysian economy, a potentially better external outlook, and with comprehensive measures in the Budget 2014, the government hopes the real gross domestic product will expand at 5 to 5.5 percent in 2014.

Despite the fact that 2014 is likely to see a stronger growth recovery among advanced economies, the Finance Ministry says in its 2013/2014 Economic Report, several downside risks such as a potential slowdown in China and significant reductions in global financial liquidity, which could lead to hikes in interest rates, will need to be navigated in the coming year.

As such, the focus will be for Malaysia to enhance the resilience of the domestic economy in driving growth while maintaining the sustainability of public finances. Therefore, macroeconomic management will focus on emphasising private-led growth and improving productivity and competitiveness of the economy in the coming year, .

In order to achieve these goals, the government says that the Budget 2014 will aim to stimulate investment, strengthen human capital, accelerate urban and rural development, strengthen the government's financial position, inculcate high performance standards in the civil service and prioritise the well-being of the rakyat through encouraging productivity and innovation.

The report says that these measures will be done on the back of strong fundamentals; as inflation is expected to remain manageable with Consumer Price Index (CPI) averaging at two to three percent in 2014.

Meanwhile, labour market conditions are likely to remain stable, with the unemployment rate at 3.1 percent. In fact, employment in the export-orientated industries and the trade and tourism sub-sectors will likely benefit from improved external demand and increased tourist arrivals in line with Visit Malaysia Year 2014 (VMY 2014).

Private investment, which will be given emphasis in 2014, is expected to continue to grow at a double-digit pace, supported by the ongoing Economic Transformation Programme (ETP), in line with the government's push for increased private sector's participation in the economy.

Hope for more investment in value-added sectors

In addition to the usual suspects like the domestic-oriented industries, consumer related services and manufacturing, and an increase in capital spending in the export-orientated industries amid better external demand; the government is also hoping to see more investment in new growth areas that are high value-added, high technology and knowledge intensive industries such as biotechnology and pharmaceuticals, and green technology among others.

Public investment will be sustained by Non-Financial Public Enterprises (NFPE) in oil and gas, utilities, transport and telecommunications, although it is expected to decrease due to lower federal government development expenditure. Available funds will be prioritised for the social service sectors, with emphasis on infrastructure, education and healthcare programmes emphasised.

The report says private consumption is expected to remain resilient, supported by higher income and a stable labour market, with the Gross National Income (GNI) per capita expected to rise by 6.2 percent from RM32,144 in 2013 to RM34, 126 in 2014.

Meanwhile, the government is forecasting that growth will be boosted by broad-based expansion across all major sectors.

The services sector will remain a key mover for growth, in particular the tourism-related services, which will be spurred by VMY 2014 and the impending opening of KLIA2. VMY 2014 will also give the consumer orientated sub-sectors, such as wholesale and retail trade as well as accommodation and restaurant businesses, a boost on the back of larger numbers of tourist arrivals.

The communications sector is another area that promises strong growth, says the report; as it will be driven by strong demand for cellular and broadband services. Overall, a growth of 5.7 percent is anticipated in the service sector.

Electrical, electronics sub-sector to recover

In the manufacturing sector, recovery is expected to be seen particularly in the electrical and electronics sub-sector and in line with the gradual pickup in the global economy and improving intra-regional trade, a growth of 3.8 percent is expected in this sector.

Growth in construction is expected to be in the 9.6 percent region (slightly lower than 2013, which was 10.6 percent), due to slower construction activity in the civil engineering sub-sector following the completion of several major infrastructure projects. However growth is expected to come from an acceleration in implementation of transport and O&G related projects.

The construction of residential units is expected to remain strong in view of the strong demand for housing, particularly from the middle-income group. The implementation of Perbadanan Perumahan Rakyat 1Malaysia (PR1MA) is also expected to be accelerated to meet the target of providing 80,000 houses by 2015.

The report forecasts that external demand is expected to be stronger in 2014, and is expected to boost Malaysia's export growth - with stable commodity prices and resilient domestic demand expected to help support the country's trade performance.

Malaysia's trade surplus is expected to be sustained in tandem with improving external demand, says the report.

Overall gross exports are expected to rebound by 2.5 percent in 2014 (-0.4 percent in 2013) on the back of stronger manufactured exports supported by increased regional demand, primarily for resource-based products and consumer electronics; while commodity exports are expected to grow at a faster pace as prices are forecast to remain stable.

Gross imports, meanwhile, are projected to grow by 3.8 percent as imports of intermediate goods increase in tandem with higher manufacturing activity, says the report. In terms of the goods and services account, a narrowing is expected to around RM72.3 billion (RM76.7 billion in 2013), largely as a result of higher investment-driven imports.

Overall, the report outlines that on the fiscal side, total federal government expenditure will be RM262.2 billion, while revenue is estimated to be higher at RM224.1 billion. With revenue forecast to outpace the growth in expenditure, the federal government's fiscal deficit is expected to fall to 3.5 percent and debt is expected to be at 54.7 percent of the GDP. The the current account surplus is expected to be at 2.3 percent of GNI or RM23.9 billion (it was 2.8 percent of the GNI or RM26.6 billion in 2013).