Malaysia Business Forecast Report Q3 2009

Publication Date	June 2009
Publisher	Business Monitor
Product Type	Report
Pages	62
ISBN Number	1744-8794
Product Code	BMI03941

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Summary

The Malaysian economy expanded by a mere 0.1% in Q408, raising fears that an outright recession may be on the cards in 2009. The quarterly figure, which dragged the full-year 2008 growth down to 4.6%, was much weaker than expected and judging from the raft of poor economic data released in the region, we can reasonably expect GDP growth for Q109 to be dismal. In view of these dynamics, we have decided to lower our 2009 growth forecast from 0.5% to -1.9%, the increased fiscal stimulus and monetary easing none-withstanding.

Newly appointed Prime Minister Najib Razak got off to a rocky start in his position when the ruling Barisan Nasional coalition lost in two out of three by-elections conducted on April 7. This suggests that the Najib's ascent to power has not had the desired effect of giving the coalition's popularity the shot in the arm it so badly requires. However, Najib has thus far remained true to his promises of change, reform and multi-racialism, and had released 13 prisoners held under the controversial Internal Security Act (ISA) when he kicked off his term. It remains unclear if he will follow up with more action to try and regain the support lost by his coalition.

We remain concerned about Malaysia's fiscal situation, given that the MYR60bn (US$16.3bn) stimulus package will widen the deficit from our previous forecasts of 5.5% and 5.2% of GDP for 2009 and 2010, to 7.6% and 6.6% of GDP respectively. The package amounts to a whopping 9% of GDP and we remain concerned about the structural implications of the wide deficits and the resulting more drawn out fiscal consolidation process.

Malaysia announced on April 22 that the 30% ownership requirement for ethnic Malays is to be abolished across a host of service sectors. This marks a significant step towards overhauling Malaysia's divisive new economic policy (NEP). In addition, foreign ownership caps for insurers and investment banks would be raised from the existing 49% to 70%, although the ownership caps on commercial banks were left unchanged at 30%. We view these changes as positive over the longer term, but it remains to be seen if Najib would push through more reforms for a less restrictive business environment. Malaysia currently scores 61.5 in BMI's business environment ratings (BER), significantly higher than the regional average of 55.1.

Content

Executive Summary
- New Prime Minister, New Reforms?
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- By-Election Losses A Poor Start To Najib's Term
- The ruling Barisan Nasional coalition lost in two out of three by-elections conducted on April 7, suggesting that
- Najib's ascent to power has not had the desired effect of giving the coalition's popularity the shot in the arm it so badly requires
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Experiencing The Worst Now
- Following a dismal fourth quarter of 2008, during which real GDP expanded at a feeble 0.1% y-o-y, we have lowered our 2009 growth forecast, from 0.5% to -1.9%
- Monetary Policy
- Has Monetary Easing Come To A Halt?
- Following the heavy frontloading of monetary easing in January, Bank Negara Malaysia opted to hold its benchmark overnight policy rate unchanged at 2.00% at the latest monetary policy meeting held on April 29
- Fiscal Policy
- Large Stimulus Package Will Help, But How Much?
- In an attempt to revive its flagging economy, the government of Malaysia announced MYR60bn (US$16.3bn) in additional public spending on March 10, which it plans to disburse over the next two years
- Investment Climate
- Will Najib Push Through Reforms And Tackle Corruption?
- Newly appointed Prime Minister Najib Razak has thus far lived up to his rhetoric of reforms and changes
Chapter 3: 10-Year Forecast
- The Malaysian Economy To 2018
- Stalled Reform Process Poses Risks To Growth Potential
- Following a brief period of below-trend growth in 2009 and 2010, we are forecasting real GDP growth to remain above 4.0% throughout the rest of our 10-year forecast period, as domestic demand and the service sector replace exports and manufacturing as the key drivers of growth
Chapter 4: Special Report
- The Outlook For Global Banking
- Business Environment Rating Outlook
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- Retail
- Executive Summary
- A low unemployment rate, rising disposable income and a strong tourism industry are key factors behind the forecast growth in Malaysia's retail sales
- Tourism
- Executive Summary
- The government looked to prioritise tourism with Visit Malaysia 2007, a series of events designed to highlight the attractions of the country as it celebrated 50 years of independence
Chapter 7: BMI Global Assumptions
- Global Assumptions
List of Tables
- Table: Political Overview
- Table: ECONOMIC ACTIVITY
- Table: MONETARY POLICY
- Table: FISCAL POLICY
- Table: Long -Term Macroeconom ic Forecasts
- Table: LOAN-TO-DEPOSIT RATIOS, Selected St ates
- Table: LOAN GROWTH, Selected St ates
- Table: COMMERCIAL BANKING BUSINESS ENVIRONMENT RATINGS, SELECTED STATES
- Table: BMI's Asia Pacific Business And Operational Risk Ratings
- Table: BMI's Asia Pacific Legal Framework Ratings
- Table: Annual FDI Inflow s To Asia
- Table: BMI's Asia Pacific Trade Ratings
- Table: Top Export Destinations (US$mn)
- Table: Retail Key Indicators
- Table: Tourism Industry, 2005-2013
- Table: GLOBAL ASSUMPTIONS
- Table: GLOBAL & REGIONAL REAL GDP GROWTH
- Table: EMERGING MARKETS
- Table: COMMODITIES