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Malaysia’s economy: resilient?

by Kevin Brown
Financial Times
August 17, 2011

Is Malaysia set for sustained economic growth this year, or exposed to serious potential problems if wobbles in the West turn into another slowdown? It depends who you ask.

The central bank is in no doubt that growth will continue, in spite of a fall in the annual pace of growth from 4.9 per cent in the first quarter to 4 per cent in the second.

In robustly positive comments issued with the numbers on Wednesday, Bank Negara acknowledged the impact of weakness in the advanced economies, but insisted that growth prospects remained underpinned by the expansion of private domestic demand and strong exports of commodities and resource-based products – for which read oil, gas and palm oil.

Part of this argument reflects the bank’s insistence that monetary policy remains supportive of economic activity in spite of a further increase in official interest rates to 3 per cent in May.

The bank paused the upward movement of interest rates in July, responding to growing fears about slowing growth, but wants to be free to start raising rates again to head off simmering inflationary pressures. The consumer price index hit 3.3 per cent on an annualised basis in the second quarter, up from 2.8 per cent in the first.

But the bank does also seem to believe that the global weakness in the second quarter was mainly due to temporary factors such as the supply chain impact of the Japanese earthquake in March. Resilient domestic demand will support growth amid sustained private consumption, strong private investment and faster progress on public works projects, it says.

The trouble is, the bank’s tone is at odds with rising uncertainty outside Malaysia about the country’s ability to keep growing. Goldman Sachs downgraded its GDP forecast for the full year from 5.4 per cent to 5 per cent last week, while Standard & Poor’s, the credit rating agency, said the country’s growth prospects were poor in the event of a crisis. Both referred to its relatively open, export driven economy combined with weak public finances still recovering from the 2008-09 crisis.

The point was made even more strongly on Wednesday by Kun Lung Wu, an economist at Credit Suisse in Singapore, who argues that Malaysia is one of the two Asian countries least well placed to withstand a sharp slowdown caused by financial worries in the US and the eurozone. (The other is India).

Although Malaysia ran one of Asia’s most expansionary fiscal policies during the 2008 crisis, equivalent to about 10 per cent of GDP, its toxic combination of high government debt relative to GDP and a big primary fiscal deficit means it could not do so again without endangering its ability to reduce the debt ratio, says CS.

On top of that, the country’s fiscal position is extremely exposed to a fall in global prices. Oil and gas revenues amount to about 40 per cent of total government revenues each year, and about 8 per cent of GDP. So a $10 fall in the oil price strips M$2bn (about 0.3 per cent of GDP) out of government revenues.

Of course, the advanced economies may quickly recover, and oil prices may go up again. But if they don’t, expect long faces in Kuala Lumpur.

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17 Replies to “Malaysia’s economy: resilient?”

  1. I think one positive factor is the country’s high domestic savings which has continued help to augment government borrowing without causing excessive inflationary pressure. Fiscal deficit is an issue, but more importantly, it is how the deficit is financed, whether from inflationary sources or non inflationary sources and also whether from external or domestic lenders.

  3. To the ordinary folks…cost of living keep rising making it difficult.. to make ends meet…by a country blessed with so much oil and exporting making 60..and now..80 billions each year.
    Instead of being a blessed country…it is made to be ordinary struggling country..by the government who non stop stealing for decades…making all suffer for nothing.
    I am sick of reading this must be done…that must be avoided.
    India have brain power and hard working people.
    Malaysia have money power..with thieves and rouges stealing it at every opportunity.
    India will be a super power like China.
    Malaysia will go to the dogs,,,,,,,if we do not change the government and save it.

  5. No Way ahead ,Just Going down the slippery slope forever,Bursa shares thumbles>>Bang!!>>Who were the goons running Malaysia Suicidal Economy and Now Its completely sunk ,no more hope>> That’s the end result of the NEP Tongkat Ali welfare,squandered by Umnoputra Tycoons and kakis…Morons bigots were of real greed & their Race struggle selfishness,wrong priorities of policies implementation>>Borrow money ??

  7. Be positive and confident.
    Rouges are being cornered now.
    Why so negative in mentality and personality?
    Make sure you cast your vote against Najib’s government in 13th GE.
    Do you dare to declare it….with no ifs and buts?
    The road to success is full of rocks and pit falls.
    Never give up.
    One dish washer found a job back home.. as traveling salesman is bragging …is enough…whose vote cannot be relied upon…if you can read between the lines and judge his comments.

  9. Expect long faces in kuala lumpur kevin? Uh ah. You aint know nothin bout umno man. Umno can get things wrong by lightyears and still be righteous about it. Umno can miss set targets completely and blame it all on others like for instance, the opposition and (yes yes) singapore and and (dont be surprised) and even the communists and the bersih movement and this article that you have written.

    So there. Umno is never wrong. Get that? Knock it into your head right now, if you do not.

  11. People Power will log horns with UMNO B…as a last resort…if these little napoleons keep proving they are never wrong when so much have been proven……how wrong they were and still is.
    They will not change….and so make them vacate PutraJaya and give PR a chance to govern.
    Win with frauds and phantom votes….People Power is ready to act as they see fit.

  12. While we are talking of economic resilience, I cannot but take note of a report by Mckinsey on education some time ago.
    Quote: ” The quality of education system CANNOT exceed the quality of its teachers”. It was reported that Korea [ South] recruits its teachers from the top 5% of its graduates; Finland: top 10% and singapore top 30%.
    Quote: ” As the war for talent intensifies, rising to the challenge bcomes even more difficult”.
    Teachers recruitment in Finland:
    – National screening – check for strong intrinsics
    – Assessment tests [university] – xcheck overall academic ability and iteracy
    – Interviews [ at University] – check suitability for teaching
    – Group works [ university] – check sustainability for teaching
    Result: onlt 1 in10 is accepted for teaching!
    Salaries are Above average [ why not after such vigorous selection!]
    Quote: The only way to improve outcomes is to improve instruction”.
    Professional development in Shanghai and Japan:
    -they work in teams to analyse and develop model lessons
    – Demonstration lessons; teachers have to demonstrate lessons to a wider group of instructors
    Quote: ” High performance requires every child to succeed”.
    Finland focuses on mathematics and languages
    Quote: ” Great leadership at school levels is a KEY enabling factor:.
    Singapore has a 6 month-programme to develop a headmaster!
    Quote: ” We train our teachers and vice-principals to apply best practices. We train our principlas to create them”.
    Among other practical trainings, they have a two week-overseas placement with firms like IBM, HP, Ritz Carlton.; so only candidates who demonstrate competence will succeed.
    How many of these basic requirements are met locally? It looks like with all our sloganeering, we will not achieve such objectives nationally; albeit the naturally talented will still survive to compete with the best in the world! The issue:Can the nation aspire to be in the FIRST WORLD, 10 years hence??

  14. The economy is slipping and weighing against UMNO’s and the BN’s popularity. Economic growth fell to its lowest level in two years in the first quarter, dipping to 3.6% from 4.6% last year. That decline could delay what many analysts believe is a much-needed hike in interest rates to cool inflation, which has risen sharply over the past two years. Taken together with government plans to remove some price subsidies, rumblings about the higher cost of living will be a key issue at the next polls.

    http://www.atimes.com/atimes/Southeast_Asia/MH19Ae02.html

  16. waterfrontcoolie made some interesting comments on education.
    I am sure if we make a survey, our teachers are a mediocre lot with mediocre results. The best go overseas and to varsities to pursue courses in science, engineering, business etc.
    Only the low 40% go for teaching.
    Now tell me how can our education system excel when 90% of them are from one race.
    Here the qualification is race not academic results.
    Who cares about excellence?
    Now we have teachers who write a correct sentence is English, teaching that language to our children.

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