Malaysia Business Forecast Report Q3 2008

Political Developments Take Centre stage We are forecasting real GDP expansion to moderate from the 6. % witnessed in 007 to . % in 008, as a weakening external climate weighs heavily upon Malaysian export growth, and rising inflation constrains the government's efforts to extend the consumption boom experienced last year.

Nonetheless, demand from China will ensure that Malaysia's export sector remains supported, even in the face of softening demand from the US (its largest export market). While we see limited scope for interest rate cuts, we are still forecasting domestic demand to continue as the main driver of Malaysian economic growth. Thus, private consumption and investment will continue to help counter a weaker performance of net exports to keep the economy buoyant.

Malaysia is facing a period of political uncertainty after the ruling Barisan Nasional (National Front) suffered its worst ever result in general elections held on March 8. Calls for Prime Minister Abdullah Ahmad Badawi's resignation have grown increasingly vocal, and the prospect of him being ousted as party leader when United Malays National Organisation (UMNO) elections take place in December is rising. Consequently, we have revised down our short-term political risk (STPR) rating for Malaysia, which has seen the constitutional change component of the country's STPR rating fall from nine to seven, lowering the overall STPR rating from 86. to 8 .8.

As expected, Bank negara Malaysia (BNM) kept its Overnight Policy Rate on hold at . 0% at its February 25 policy meeting after consumer price inflation climbed to a 12-month high of 2.7% year-on-year (y-o-y). With consumer prices looking set to continue rising over the medium term as commodity prices remain high, the central bank is likely to retain its current neutral monetary policy stance until the global and domestic outlooks become more clear. With this in mind, we are anticipating further appreciation for the ringgit going forward as the bank allows greater gains for the currency in order to curb imported inflation, and have in fact revised up our end-2008 ringgit forecast to MYR .00/US$.

Malaysia receives a score of 61.5 in our Business Environment Ratings, placing it 34th in the world and sixth in Asia. However, its ambitions are set higher than this. The government is committed to the goal of turning Malaysia into a developed state by 0 0, but for this to become a reality, improvements in a number of key areas must be made. Since he became leader in 00 , Abdullah Ahmad Badawi has promised to clean up corruption, depoliticise the judiciary and make changes to the health care and education systems, but progress has so far been slow. Following the dire showing in March's national elections, the ruling National Front coalition may be forced to hasten the pace of reform, but political uncertainty is likely to curtail any such efforts.

• Executive summary
• Political Developments Take Centre stage
• Political Outlook6
• sWOT analysis
• BMi Political Risk Ratings
• Domestic Politics8
• How long Can abdullah last?
• Malaysia is facing a period of political uncertainty after the ruling Barisan Nasional suffered its worst ever result
• in general elections held on March
  • Table: Malaysian Cabinet
  • Table: Malaysia Political Overview
• Chapter 2: Economic Outlook
  • sWOT analysis
  • BMi Economic Risk Ratings
  • Economic activity
  • Downside Risks To Growth swiftly Mounting
  • We are expecting real GDP expansion to moderate to 5.5% in 2008, as a weakening external climate weighs
  • heavily upon Malaysian export growth, and rising inflation constrains the government's efforts to extend the
  • consumption boom witnessed in 2007
  • Table: Economic activity
  • Exchange Rate Policy
  • MyR: Heading To MyR3.00/Us$ in 2008
  • Table: Exchange Rate Policy
  • Balance Of Payments
  • Current account Balance secure, Despite Export Concerns
  • Although a weaker global economy will weigh on the country's financial account as investment inflows suffer,
  • Malaysia's overall balance of payments position remains secure
  • Table: Balance Of Payments
  • investment Climate
  • Bright Future For islamic Finance
  • Demand for shari'a-compliant financial products continues to boom amid rapidly rising incomes across the
  • Islamic world
• Chapter 3: special Report
  • Business Outlook For Global Frontier Markets
  • Growing Fast On The New Frontier
  • The 41 states that BMI examines in a new report on our online service may make up only a small slice of the world
  • economy, but they possess characteristics that will see them gain importance in the eyes of investors and global
  • businesses over the coming years
  • Frontier investment
  • Potential and Pitfalls
  • The spectacular macroeconomic performance of frontier markets in recent years has been matched by
  • mildly successful efforts to deepen capital markets
  • Table: Frontier Markets - Key Data and Projections For Top 10 Countries
  • Table: GDP Per Capita, Us$ (in Order Of % increase)
  • Table: Diversify Through Frontier Markets - Correlation Coefficients January 2004-April 200825
  • Table: Frontier Market indices26
  • Regional Overview
  • From Hidden Dragons To Final Frontiers
  • laos
  • Neighbouring Economies The Key To Growth
  • Laos's GDP growth has been boosted in recent years as neighbours China, Thailand and Vietnam compete for its
  • natural resources
  • yemen
  • Huge Potential, But Don't Bank On GCC Membership
  • Markets do not come much more frontier than Yemen, and, as would be expected, there is huge potential for
  • development, with the prospect of eventual GCC membership likely to act a key investment pull
  • Table: yemen - Economic activity
  • Democratic Republic Of The Congo
  • Mining industry To Drive Growth
  • The Democratic Republic of the Congo's mining industry will be a key driver of growth and is likely to attract
  • significant levels of FDI, with our real GDP forecasts standing at 8.3% and 7.9% in 2008 and 2009, respectively
  • Table: Democratic Republic Of The Congo - Economic activity33
  • Cuba
  • investment Prospects after Fidel
  • The accession of a new leadership structure in Cuba has sparked excitement that the 45-year-old trade embargo
  • with the US may be lifted and Cuba may move toward market liberalisation
  • Table: Cuba Macroeconomic Data and Forecasts
  • Mongolia
  • Minerals To Drive Economic Boom
  • Mongolia is in the midst of a massive resource-led economic boom that should lift GDP growth into the double
  • digits and underpin robust increases in exports and inflows of foreign investment capital over the long term
  • Table: Mongolia - Economic activity
• Chapter 4: Business Environment40
  • sWOT analysis
  • BMi Business Environment Risk Ratings41
  • Business Environment Outlook
  • Table: BMi Business and Operational Risk Ratings
  • institutions
  • Table: BMi legal Framework Ratings44
  • infrastructure
  • Market Orientation
  • Table: Malaysia Annual FDI Inflows48
  • Table: BMi Trade Ratings50
  • Table: Top Export Destinations
  • Operational Risk
• Chapter 5: Key sectors53
  • Power
  • Table: Malaysia Power - Historic Data & Forecasts
  • Food and Drink
  • Table: Malaysia Beverage sub-sector Value sales - Historical Data & Forecasts58