Kuala Lumpur: More Bad News For Malaysia’s Economy

Kuala Lumpur: More Bad News For Malaysia’s Economy
Business

2009-03-26 17:15

KUALA LUMPUR: The bad news is that Malaysia’s economy may dive into the negative territory this year. But the worst is yet to come, according to a UN Survey.

Malaysia is unlikely to escape a technical recession in the first half of 2009, noted Kamal Malhotra, the United Nations resident coordinator for Malaysia, who is also the UNDP regional representative, when he released the latest UNESCAP Asia Pacific economic and social survey entitled - “Addressing Triple Threats To Development” here Thursday (26 March).

“It seems more than likely that the country will continue to face significant economic challenges in the short to medium term,” he said.

“Some independent estimates suggest Malaysia’s GDP growth in 2009 could be as low as a negative 5%,” added.

However, on the upside, Malaysia may be resilient in the current crisis, according to Dr Mahani Zainal Abidin, director general of ISIS Malaysia, who spoke on the impact of the global crisis on Malaysia.

She said this is due to, among other things, Malaysia’s valuable experience from the 1998 crisis, the balanced structure of its domestic economy, a strong banking sector, ample liquidity to finance a stimulus package and sufficient international reserves.

She noted that FDI inflows into Malaysia in 2009 is expected to be RM26 billion or half that of last year’s. She also said the sharp decline on the local bourse of 39% in 2008 has led to a massive impairment of investors’ values.

Dr Mahani also pointed out that there was an outflow of short term capital for two consecutive quarters; RM30.31 billion in second quarter of 2008, and RM38.05 billion the following quarter. This has led to Bank Negara’s international reserves falling to US$90.6 billion on 13 March 2009 compared with US$125.8 billion last June. It was even lower at US$85 billion as at end Feb 2009.

In view of this, the central bank cut its policy rates twice from 3.25% in Nov 2008 to 2.00% last month. At the same time Bank Negara also cut statutory reserves requirements by half from 4.0% in Dec 2008 to 2.0% last month.

The govenrment responed to the ongoing crisis by introducing two stimulus packages,one in five months ago comprising RM7 billion (1.0% of GDP) and another of RM60 billion (9.0% of GDP) ten days ago. As noted by Dr Mahani, the concern is the speed of drawdown as so far only RM1 billion has been used and only RM5.6 billion is expected to be used by middle of this year. (By BOB TEOH/ MySinchew)