EIU's Bleak Prognosis Of Malaysia

Economic Intelligence Unit / Dec 14 — Political uncertainty and instability are unlikely to dissipate in the months ahead, despite an expected orderly transfer of power from the prime minister, Datuk Seri Abdullah Ahmad Badawi, to the deputy prime minister, Datuk Seri Najib Razak, in March.

The leader of the opposition alliance, Datuk Seri Anwar Ibrahim, will continue with his campaign to destabilise the ruling Barisan Nasional government by persuading BN legislators to switch to the opposition. The Economist Intelligence Unit expects the BN coalition to remain in power in the forecast period. The BN still has a sufficiently large majority to pass the bulk of new legislation unchallenged.

We expect real GDP to grow by just 1.5 per cent in 2009, reflecting Malaysia's exposure to the global economic slowdown. We expect world trade to shrink by 0.5 per cent in 2009.

Inflation is forecast to moderate markedly in 2009-10, from an estimated average of 5.7 per cent in 2008. Domestic demand growth will be sluggish, and global prices for oil and industrial raw materials will fall sharply in 2009.

The merchandise trade surplus will fall to US$22.9 billion (RM82.4 billion) in 2009, from an estimated US$35.3 billion in 2008. The current-account surplus will also shrink in the next two years.

The slow pace of judicial reforms has led to growing concerns in the past month that the next prime minister of Malaysia will clamp down on critics and members of the opposition.

Bank Negara Malaysia reduced the overnight policy rate by 25 basis points on Nov 24 to 3.25 per cent, the first reduction since 2003. The government unveiled a package of fiscal stimulus measures in early November. It also revised its economic forecasts for 2009.

Malaysia's economy grew by 4.7 per cent year on year in the third quarter of 2008, a marked slowdown compared with the second quarter, when the economy grew by 6.7 per cent. The annual rate of inflation fell below 8 per cent for the first time in three months in October. Inflation, as measured by the consumer price index, increased by 7.6 per cent year on year in October. Merchandise exports grew by 15.1 per cent year on year in September, bolstered by still high global prices for oil, palm oil and liquefied natural gas. But prices for all three commodities have declined sharply during the fourth quarter.

p/s photo: Kou Shibasaki