24 April, 2008
(The Star) - UBS Investment Bank sees a modest slowdown for Malaysia this year and a slightly lower gross domestic product growth of 4.8% compared with last year.
Managing director, global economies, Paul Donovan said it was unlikely that Malaysia would be able to match last year's growth rate, which was “extremely good”.
“We are expecting Malaysia's export growth to be flat this year. I'm not looking at a disaster,” he told a press briefing yesterday.
However, he expects Government spending to rise “a little above 8% this year'' and consumer spending to provide support for the economy.
London-based Donovan said while there is a correlation between the US and Asian economic cycles, there could be a “partial decoupling whereby domestic demand would mitigate the loss of exports”.
“The export sector is tied to what happens in the rest of the world.
“However, for some countries including Malaysia, domestic demand will limit the damage in the export sector,” he added.
Donovan expects the US to cut interest rates to 1.5% in June and Europe to lower rates by one percentage point in March next year.
He said it would be difficult to have 70% of the world economy operating at below trend growth and yet see rising export growth in Asia this year.
While there was increasing evidence that the US and Euro economies are slowing, he sees volatile times ahead for global economies, and a “more normal global environment by 2010”.
“We believe that the financial system will stabilise and financial markets will begin to operate normally. I think there is every prospect of this normalisation happening relatively quickly,” he added.
On oil prices, Donovan said it was unlikely to push inflation higher than it was last year, unless oil is traded above US$185 per barrel.
On the subprime woes, he said capital injection into Fannie Mae and Freddie Mac and new legislations were expected to provide stability in the subprime market.
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