Malaysia Country Forecast By EIU

There are research units, even highly respected ones, that actually makes "big picture" business environment forecast on Malaysia and other emerging markets. I guess its to help foreign companies to better plan their long term investment plans. Some of the forecasts are quite "in your face" and matter of fact, not so sure if you ask me. My comments in colour.


-------------------------

Malaysia: Business environment at a glance

FROM THE ECONOMIST INTELLIGENCE UNIT Policy towards private enterprise and competition 2010-11: The government gradually reverses the decades-old policy of discrimination in favour of bumiputera (ethnic Malays and other indigenous peoples). Protection of intellectual property rights continues to improve. (Yes, there have been some deliberate action towards that. For Najib to make the biggest impact prior to the next election, I think giving bumiputera status to all Malaysians born on and after 1957 would be the simplest and most effective reversal of said policy, without actually having to remove the policy, which might be politically insurmountable). 2012-14: Scope for the government to protect domestic industries and bumiputera groups dwindles as South-east Asian economic integration proceeds. (I totally agree and Malaysia better remove the subsidies and indirect duties that protect these domestic industries in order for them to better compete, or be decimated). Policy towards foreign investment 2010-11: Competition with China guides investment incentives; Malaysia emphasises its advantages in labour skills (such as English-language proficiency), natural resources and infrastructure. 2012-14: Malaysia expands incentives in order to establish itself as a regional services centre. Foreign trade and exchange controls 2010-11: The ringgit appreciates against the US dollar, but the exchange-rate regime of a managed float against a trade-weighted basket of currencies is maintained. 2012-14: Further bilateral trade agreements and progress towards regional economic integration prompt Bank Negara Malaysia (the central bank) to allow offshore trading of the ringgit. (Bank Negara is treading very cautiously on this, and they have their reasons. International convertability and free flow of the ringgit should be promoted, albeit gradually). Taxes 2010-11: The government continues to subsidise fuel and food. It also makes minor changes to personal tax rates, as part of a package of measures aimed at supporting domestic demand. 2012-14: Macroeconomic fundamentals improve, allowing the government to introduce a goods and services tax. Financing 2010-11: Keeping financial markets liquid remains a priority for the government. 2012-14: Competition for corporate finance intensifies as the economy recovers fully from the global economic downturn. Malaysia continues to play a leading role in the development of Islamic banking and finance. The labour market 2010-11: Despite government efforts to trim the size of the foreign workforce, illegal immigration remains a problem. 2012-14: A shortage of highly skilled labour impedes progress at the upper end of the value chain. Positive discrimination in favour of bumiputera continues to harm labour market efficiency. Infrastructure 2010-11: The government implements projects aimed at supporting activity in the construction sector. Public transport improves as a result of increased government investment. 2012-14: Major infrastructure projects are delayed, owing to a lack of private-sector involvement. Energy policy focuses on improving distribution rather than increasing generating capacity.

The Economist Intelligence Unit

p/s photos: Janine Zhang

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