Economy may contract less than estimated

Written by Soraya Permatasari
Thursday, 15 October 2009 11:38

KUALA LUMPUR: Malaysia’s economy may shrink less than previously forecast this year amid signs of a global recovery from the worst recession since the 1930s, the Malaysian Institute of Economic Research (MIER) said.

Southeast Asia’s third-largest economy will probably contract 3.3% in 2009, the institute said in a report released yesterday, raising its forecast from a July prediction for a 4.2% decline. It increased next year’s growth forecast to 3.7% from 2.8%.

“There are glimmer signs that the global downturn has stabilised somewhat, but the recovery is expected to be sluggish and uneven,” MIER said. “Malaysia may not regain more strength until the global economy is back on track, which is going to be at a disappointingly slow pace.”

Asia is leading the world’s economic recovery after the region’s policymakers slashed interest rates to unprecedented lows and governments announced more than US$950 billion (RM3.21 trillion) of stimulus.

Malaysia’s industrial production fell the least in 10 months in August, a report showed this week, adding to signs the country may soon emerge from recession.

The central bank says economic contraction probably eased last quarter, and the government predicts growth will resume by year-end.

Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz said last week the US$195 billion economy will probably shrink less than the government’s forecast for a contraction of as much as 5% this year.

Singapore raised its 2009 economic forecast this week after gross domestic product expanded for a second consecutive quarter.

“For growth to get back to its trajectory is going to take a long while. We have to wait probably until 2012,” MIER’s executive director Mohamed Ariff Kareem told reporters here yesterday. “Until then, we will continue to struggle with tepid, fragile growth.”

Exports of goods and services may fall 17.5% this year before growing 9.3% in 2010, the partially government-funded research institute predicts. Inflation may average 0.8% in 2009 and 2.3% next year. The jobless rate may reach 4.5% this year and 4.2% in 2010, it said.

Prime Minister Datuk Seri Najib Razak has unveiled RM67 billion of stimulus measures and eased foreign investment rules to shore up growth in the past year. The government cut its 2009 GDP forecast in May, predicting a contraction of 4%-5%.

The ringgit, which has gained 1.9% this year, is undervalued even as there are a lot of uncertainties regarding the dollar, Ariff said yesterday. The Malaysian currency may reach 3.3 against the dollar by the end-2010 and 3.0 a dollar in 2012.

The government’s budget shortfall may reach 8% of GDP this year and as much as 9% in 2010, Ariff said.

Malaysia’s budget deficit is forecast by the government to widen to 7.6% of GDP in 2009, the most since 1987. The 2010 shortfall will be smaller as operational spending is cut, Second Finance Minister Datuk Ahmad Husni Hanadzlah said yesterday.

“Although the external sector was still weak, public spending had cushioned the economy from a deeper slide,” MIER said in yesterday’s report. “In view of the widening fiscal deficit, the government plans to reduce its expenditure in the 2010 budget, possibly through reduction in energy subsidies and/or tax reform.”

The institute’s consumer sentiment index fell 0.4 points to 105.4 in the third quarter from the previous three months. The business conditions index climbed 8.4 points to 113.7. — Bloomberg