Local demand pick-up spurs economic rebound

By Rupa DamodaranPublished: 2009/09/25

Malaysia's domestic demand has picked up, showing signs of a rebound in the economy, says Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz.

"From domestic demand, we're seeing clear signs of a recovery benefitting from the fiscal policy and accommodative monetary policy," she said on the sidelines of the two-day SEACEN-BNM Banking and Financial Law School 2009 conference in Kuala Lumpur yesterday.

The country's gross domestic product (GDP) has contracted at a slower pace of 3.9 per cent in the second quarter of this year compared with a 6.2 per cent contraction in the first quarter.

Zeti also said Malaysia is not much concerned about facing the risk of a W-shaped economic recovery path as it does not have any financial issue to address unlike some other economies, which are overleveraged.

"There could be a second round of effects on the financial system given the economic slowdown, but in our case we do not have such conditions. Our banks are solid and continue to provide access to financing - all these are positive to support the domestic demand and domestic business," she added.

The central bank chief also said that the Overnight Policy Rate, currently at 2.0 per cent, is at an appropriate level and supporting demand.

"The business environment is dynamic and is expected to improve significantly next year," she said.

Any revision in the government's outlook on the economy will be revealed in Parliament together with the budget announcement in October.

Meanwhile, Zeti said the external sector needs to see significant improvement to support the local economy's recovery.

"We have been significantly affected because of the collapse in world trade. Now, we are seeing domestic demand recovering, but trade still accounts for a significantly part of the economy."

She expects exports to improve in the third quarter and post a positive growth in the fourth quarter of 2009.

The Asian Development Bank recently revised downwards Malaysia's growth forecast for 2009 to -3.1 per cent from an earlier forecast of -0.2 per cent.