Malaysia - Kriesemer

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Growth arguments C M Y K SACC / JOURNAL 1/2008 Higher Growth in 2008 Driven by Domestic Demand projected to grow at 8.6 percent, a tad In the process, this has helped cushion the slower than an expected 9.0 percent country against adverse external growth in 2007. Strong domestic developments and improved economic consumption spending, higher tourist resilience. arrivals and stronger wholesale and retail trade will spur growth. Additionally, Revival of Private Investments impetus will come from the real estate, Domestic demand has become a key business services and finance as well as growth driver in recent years and it is insurance sub-sectors. expected to play a central role in the domestic economy in the years to come. The Malaysian economy is expected to expand faster in 2008, with real gross domestic product (GDP) growth projected at between 6.0 and 6.5 percent. Inflation is projected to remain low, as output growth is below potential level. Furthermore, global inflation is also seen cushioned by a weaker US dollar, higher productivity growth and proactive measures taken by major economies to curb inflationary pressures. This year, GDP growth is projected at 6.0 percent with inflation at 2 percent. Construction sector: The construction sector is projected to expand at 6.3 percent, substantially higher than the 5.2 percent in 2007, boosted not only by ongoing infrastructure projects but also newly launched ones under the Ninth Malaysia Plan (9MP), which include the development of growth corridors and the Growth is projected at 6.8 percent in 2008, compared with 9.0 percent in 2007, and will come from higher private sector expenditure, which is seen growing at 8.2 percent, compared with 8.6 percent in 2007. “The role of the private sector as the key Favorable World Growth implementation of the Second Penang engine of growth is reflected by its high The brighter outlook for the economy is premised on favorable global growth prospects and positive contribution from all sectors of the economy, says the Ministry of Finance's 2007/2008 Economic Report. Global growth is projected at 5.2 percent next year, little changed from 2007, and supported by a balanced and broad-based expansion across the regions. Growth, in particular, will be led by emerging markets and developing countries, especially China, India and Russia. While that may be so, an expected upturn in the US economy, and sustained growth in the Euro zone, will reinforce continued global Bridge, Penang Monorail, the Ipoh-Padang Besar double-tracking rail project and the extension of the Ampang and Kelana Jaya light rail transit lines. Agriculture: The Agriculture sector is also projected to record a higher growth rate of 3.5 percent from 3.1 percent in 2007. This will be achieved on the back of rising output of food commodities, as well as palm oil and rubber. Output of palm oil is expected to rise by 2.0 percent, following improved yields and expansion in mature areas. Rubber output is also projected to go higher, supported by firmer prices, utilization of better clones and low intensity tapping system. contribution of 5.1 percentage points to GDP growth,” the report says. In contrast, public sector contribution to growth is seen at 0.8 percent, compared with 2.4 percent in 2007 as a result of lower growth of 3.2 percent in spending, compared with 10.1 percent in 2007. The report says private investment, which has slowed significantly since the crisis, will increase markedly by 9.5 percent in 2008, contributing 11.9 percent to GDP. This compares with a growth of 7.1 percent in 2007, contributing 11.6 percent to overall growth. “Investment activity is expected to strengthen following the various measures expansion, according to the report. World trade, as a result, is projected to expand at a faster pace of 7.4 percent, against 7.1 percent in 2008, underpinned by strong demand for commodities, trade in services, and sustained demand for electronics. This bodes well for export-dependent economies like Malaysia, whose export performance has been dismal in the first months of this year, dragged down by a contraction in the export of electrical and electronics products. Unlike previous years, manufacturing isn't likely to spearhead growth this year and the next. Instead, growth will be led by services, reinforced by a faster pace in construction activities. Service Sector: The service sector is Mining Sector: The mining sector is likely to expand by 4.0 percent in 2008, compared with 3.3 percent in 2007. Growth will be supported by higher production or crude oil and natural gas. Crude oil production, for example, is expected to rise because of the completion of major maintenance and rejuvenation of several wells over the last few years. Manufacturing: The manufacturing sector, a long-time engine of growth, is projected to expand 3.8 percent, compared with 3.1 percent in 2007. In 2006, manufacturing grew 7.1 percent. In the 1990s, the manufacturing sector consistently registered double-digit growth, but in the last couple of years, it has been overtaken by services, reflecting the fact that Malaysia has diversified its income base to other sectors. taken by the government to improve the business climate, including further reduction of corporate tax to 26 percent in 2008,” the report says. Additionally, measures to strengthen intellectual property rights are expected to boost investor confidence and generate more R&D activities. Greater private sector participation is seen in 9MP (9th Malaysian Plan) projects, including the various growth corridors, the trans-peninsular oil pipeline and the integrated petroleum terminal in Tanjung Bin. Private consumption is seen rising at 7.9 percent, from 9.0 percent in 2007, premised on higher disposal income. The pay hike for civil servants, effective last July, will also enhance the propensity to consume. Consumer spending will also be C M Y K SACC - Potential 39
C M Y K boosted by the positive wealth effect from target of 6.0 to 6.5 percent could be at risk infrastructure development in the island the vibrant equity and property markets. if the US sub prime mortgage crisis state of Penang. Malaysia has set ambitious The net effect is, the share of private consumption to GDP is expected to rise to deepens and creates a steep fall in external demand, economists said recently. investment targets for the development projects. 50.8 percent, compared with 49.9 percent The International Monetary Fund (IMF) 'The three Corridors have helped to revive in 2007. said it is expecting Malaysian growth to investment interest, but actual investment Public consumption is expected to slow to 5.5 percent, from 10.8 percent in 2007. Even so, its share to GDP is seen stable at 10.8 percent, compared with 11.5% in 2007. Monetary Policy slow to 5.6 percent in 2008 from the 5.8 percent estimated for 2007. 'A Weaker outlook for the advanced economies is likely to slow export growth (for emerging Asian economies) going forward,' the agency said in its World Economic Outlook report released earlier. 'Slower commitments have been slow in coming,' said Citigroup economist Chua Hak Bin in a note this week. However, the Iskandar Development has the most promising potential, due to its management. Internal Political Development Prior to the 1997 Asian Financial Crisis, the Malaysian Ringgit was an internationalized currency, which was freely traded around the world. Just before the crisis, the Ringgit was traded RM2.50 at the dollar. Due to speculative activities, the Ringgit fell as much as RM5.00 to the dollar in matter of weeks. Bank Negara Malaysia, the nation's central bank decided to impose capital controls to prevent the outflow of the Ringgit in the open market. The Ringgit is not traded internationally; a traveler needs to declare to the central bank if taking out more than RM10,000 out of the country and the Ringgt it self was pegged at RM3.80 to the US dollar. demand for Asian exports, and electronic goods in particular, and the possibility of further global financial market turbulence are particular downside concerns,' it said. In September, the Asian Development Bank (ADB), a Manila-based multilateral institution, said it is expecting Malaysia's GDP to grow 5.7 percent in 2008. Both the IMF and ADB numbers are lower than the official growth targets. 'There is a downside risk to the official forecast as export growth has already been slowing,' said Lim Chee Sing, Managing Director of RHB Research Institute. Malaysian export growth is highly dependent on demand from the US but the outlook for the world's largest economy For 50 years since independence, Malaysia has been ruled by a coalition dominated by the United Malays National Organization, or UMNO. Malaysia has prospered wonderfully, and the arrangement seemed immutable. Not any more. The governing coalition, the National Front, won the election for the federal parliament and eight of the 13 state assemblies easily enough (see table: Seats in Malaysia Parliament 2008 2004 and Malaysia election results by state). But in a huge swing it lost the two-thirds majority in Parliament that it has enjoyed for 40 years, and which enabled it to change the constitution at will. In peninsular Malaysia (ie, excluding Malaysian Borneo), it actually if narrowly lost the popular vote. The fixed change rate was abandoned to does not look good, as chances are that the In five states, including the most populous, floating exchange rate in July 2005, hours sub prime upheaval is not over yet and is the opposition will form the government. after People's Republic of China announced the same move. At this point, the Ringgit is still not internationalized. The Ringgit continues to strengthen to 3.18 to the dollar in March 2008. Meanwhile, many aspects of capital control have been slowly relaxed by Bank Negara Malaysia. However, the likely to get worse, Lim said. The latest trade figures showed that Malaysian exports to the US fell 12 percent from last year, suggesting that the slowdown in the US has already filtered down, he said. The Malaysian economy grew 5.6 percent in the first half, slightly short of the official target of 6.0 percent. The government has This is extremely good news for many reasons. The most basic is that democracies need a vibrant and credible opposition. Any party that stays in power for half a century is liable to show signs of complacency, arrogance and corruption, and UMNO is no exception. government continues not to recently announced additional measures Malaysia's Premier Minister, Dato' internationalize the Ringgit. The to boost the domestic economy, hoping to Abdullah Ahmad Badawi made sweeping government stance that the Ringgit will be sustain growth and to shield it from any changes to his cabinet line-up on 18 March internationalized once it is ready. external shocks. 2008, not re-electing his long-service trade Monetary policy in 2008 will continue to be directed at sustaining growth momentum with price stability. While inflation is expected to be benign, the report says there are nonetheless risks and uncertainties to the inflation outlook, given the sustained high global prices of Prime Minister Abdullah Ahmad Badawi is set to unveil the East Coast Economic Region (ECER). The ECER is one of the three growth projects outlined in the Ninth Malaysia Plan, the government's 200 billion Ringgit development blueprint, which will run through 2010. The other minister Dato' Rafidah Aziz. This was the biggest surprise in the new line-up of the new cabinet. Half of the cabinet will be new faces and the cabinet will be reduced from 45 to 36 ministers. Dato' Rafidah Aziz's successor is the former Minister of agriculture Tan Sri Muhyiddin Yassin. energy, commodities and food. two Corridors are the Iskandar A pleasant surprise was the appointment of Outlook Critical Reasoning Development Region in the southern Johor state and the Northern Corridor Dato' Amirshan A. Aziz as the minister in charge of Economic Planning Unit (EPU) The Malaysian government's 2008 growth Economic Region, which focuses on in the Prime Minister Department. Dato' 40 SACC - Potential C M Y K SACC / JOURNAL 1/2008
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Malaysia - Kriesemer

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