Crude oil storage tanks are seen from above at the Cushing oil hub, appearing to run out of space to contain a historic supply glut that has hammered prices, in Cushing, Oklahoma, March 24, 2016. REUTERS/Nick Oxford/File Photo
KUALA LUMPUR: US President Barack Obama’s former economic advisor has expressed optimism on Malaysia’s economic growth prospects going forward given the nation’s solid macro position.
Professor Alan B Krueger, former chairman of the President’s Council of Economic Advisers, said he is on the same page with the Malaysian government on the country’s growth prospects and has identified the middle income trap as a challenge to be overcome in propelling Malaysia’s economic performance forward.
“Malaysia is in a solid macro position -- low unemployment, moderate inflation, current account surplus - though headwinds from slower external demand, brain drain and possible capital outflows are downside risks to the economy,” he said in a statement on Tuesday.
Krueger, who is now Professor of Economics and Public Affairs at Princeton University, anticipates crude oil to fluctuate around US$50 per barrel this year, which would be positive for Malaysia’s economy.
He said in Malaysia’s recalibrated Budget 2016 in January, the Government assumed Brent crude oil prices at US$30-35 per barrel with the fiscal deficit being maintained at 3.1% of gross domestic product (GDP) from last October’s 2016 Budget announcement.
“A price of US$50 would be something of a sweet spot for the world economy, boosting consumer and industrial demand in oil-importing nations and supporting the economy in oil-exporting nations as well,” he added.
Krueger also expressed pessimism about the usage of renewable energy to replace fossil fuels in the near future, saying he expects petrol and liquefied natural gas (LNG) to continue to be the main sources of energy for vehicles.
On the global front, Krueger said the sluggish growth is due to demographic trends and growth convergence.
He said an economy should capitalise on strengthening human capital as well as take advantage of new innovations and technology while investing in infrastructure to improve productivity.
“Going forward, healthcare and the internet-of-things would be global growth drivers of the future,” he added.
Krueger said he also believes that the US Federal Reserve would likely embark on a gradual interest rate hike regardless of the volatility in emerging market currencies and financial markets.
“I also believe that US economic expansion will continue next year and will not see a recession anytime soon, in spite of seven years of continued growth,” he said.
He said an interest rate hike in the US would only occur if the country is stronger, which translates into higher US imports and slower export growth as a result of a firmer US dollar.
“An increase in US imports would augur well for emerging market economies, including that of Malaysia.
“Among the emerging market economies, Malaysia’s economy has notably transformed into a more diversified economy, hence positioning itself to be more resilient and on a stronger footing than before,” he added.
Meanwhile, Permodalan Nasional Bhd chairman Tun Ahmad Sarji Abdul Hamid said Malaysia’s outward-looking strategies in terms of liberalising trade and foreign investment has been among the contributing factors to the nation’s strong economic growth, besides prudent fiscal and monetary policies, the Government’s active role in the economy as well as a robust and dynamic private sector. - Bernama
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