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UNDER EMBARGO
UNTIL 12:00 BANGKOK TIME,
05:00 GMT, 6 MAY 2010
Malaysia
Briefing Notes for the Launch in Kuala Lumpur, 17 May 2010
Growth performance
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With exports accounting for more than 80% of GDP, and an export product mix
(heavy reliance on electronics, machineries and machineries) that is highly sensitive
to income, Malaysia has been particularly vulnerable to trade shocks emanating from
the global financial crisis.
Thus, given the collapse in world external demand, the Malaysian export sector took a
hit and the economy contracted in 2009 by -1.7% after growing by around 4% - 6% in
the years preceding the crisis.
A turnaround was recorded in the last quarter of 2009, however, with the economy
expanding by 4.5 % (as compared to the last quarter in 2008). It should be noted that
the rate, which is rather high, is influenced by the low base from which the growth
rate is calculated. It is therefore still a “rebound” rather than a full “recovery”
To offset the drop in external demand in 2009, the authorities launched two fiscal
stimulus packages, and the monetary authorities responded by easing bank reserve
requirements and pushing down policy interest rates.
Exports, after falling by double digits since the last quarter of 2008, have started to
climb at a rate close to 10% in the fourth quarter of 2009 riding on the back of
improving global conditions and increases in energy prices, for which Malaysia is an
exporter. Investment also started to recover in the fourth quarter.
Because imports fell more sharply than exports, in the wake of the global crisis, the
current account continued to remain positive. As exports begins to recover as a result
of an improved world demand, and as imports increase even faster, on the basis of a
reviving economy, there will be a dent in the current account in the fourth quarter.
Fiscal and Monetary Policies: aggressively expansionary policies aligned with policy
responses of the rest of the world
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Malaysia launched an aggressive fiscal stimulus package amounting to more than 9 %
of GDP in 2009. Spread over two tranches, the aforementioned package combined
small-scale infrastructure projects such as upgrading roads, hospitals and schools with
investments in strategic infrastructure such as broadband.
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ESCAP’s Economic and Social Survey of Asia and the Pacific 2010 – Briefing notes: Malaysia
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Due to the surge in public spending the budget deficit widened in 2009. Thus, the
challenge confronting fiscal authorities is how to cut spending in a way that does not
jeopardize the economic recovery.
The outlook on inflation record in Malaysia as of now does not seem problematic.
Inflation in January 2010 was 1.07%, a rate that does not suggest overheating in the
economy.
Nevertheless, on 4 March, the monetary authorities raised interest rates by 25 basis
points (from 2% to 2.25%), making it one of the first economies to reign in an
expansive monetary policy. However, this is regarded as a fairly mild tightening that
is not expected to threaten economic recovery, and seems to have been driven by a
recognition that interest rates being kept “too low for too long” in an attempt to boost
domestic demand, may fuel inflation.
Non-performing loans as a percentage of total commercial loans continue to be low,
barely 2% (as of November 2009), indicating relative resiliency of the banking sector
to the global crisis.
Recovery
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Malaysia is expected to grow by at least 5% in 2010, driven by domestic consumption
and exports.
Malaysia, like other Southeast Asian economies, is faced with the challenge of
crafting an exit strategy from the stimulus that does not derail recovery and at the
same time starts to unwind fiscal deficits that built up during the crisis.
The task confronting policymakers is how to promote investments in the private
sector (on the expenditure side of the economy) and to expand the services sector (on
the supply side).
The government has embarked on a number of measures to attract foreign direct
investments (FDI).
The role of China as Malaysia’s trading partner looms large in the years ahead. It is a
key destination market for Malaysia and increasingly one of the biggest source of
imports.
Published by the UN Economic and Social Commission for Asia and the Pacific – May 2010
Not an official document
http://www.unescap.org/survey2010
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