The cut in EPF's compulsory savings may just transform to precautionary savings instead of being spent. This will negate the intended effects of the EPF cut on consumption. We feel that the pump priming may not have as much impact on the economy as expected, and furthermore, it will take time for the measures to work through the system. The assumptions made can be elusive especially when lower confidence reigns on business and consumption decisions. The above considerations compel us to revise our GDP growth forecast for 2001 downwards to 4.0 per cent, from previous 5.0 per cent.
Inflation is a lesser issue with slower economic growth and somewhat stable import prices.
Although income will continue to rise, private consumption is going to be affected more by lower confidence and the downtrend in the stock market. We project private consumption to decelerate to a 6.5 per cent growth in 2001, from 12.4 per cent in 2000. With slower economic growth in the US and Japan, we expect FDIs to be less forthcoming, despite high MIDA approval figures. On the back of the fiscal stimulus package, public expenditure is predicted to pose good growth. As it will take time to implement projects, the impact of the fiscal push may extend to next year.