Country Report Malaysia February 2009

Outlook for 2009-10

• Political uncertainty and instability are likely to persist in the months ahead, despite an expected orderly transfer of power from the current prime minister, Abdullah Badawi, to the deputy prime minister, Najib Razak, in March 2009.
• The leader of the opposition alliance, Anwar Ibrahim, will continue with his campaign to attempt to destabilise the Barisan Nasional (BN) government by persuading BN legislators to switch to the opposition.
• The Economist Intelligence Unit expects the BN coalition to remain in power throughout the forecast period. The BN still has a sufficiently large parliamentary majority to pass the bulk of new legislation unchallenged.
• Following a raft of weak domestic economic data releases and a downward revision to our GDP forecast for Malaysia's largest trading partner, Singapore, we now expect the Malaysian economy to contract by 1.8% in 2009.
• Malaysia is expected to experience mild deflation in 2009 as domestic demand weakens and global prices for oil and industrial raw materials fall sharply.
• The merchandise trade surplus will fall to US$33.9bn in 2009, from an estimated US$35.4bn in 2008. Although the current-account surplus is also expected to narrow relative to 2008, it will remain sizeable.

Monthly review

• In February the state of Perak became the centre of a power struggle between the United Malays National Organisation (UMNO, the dominant party in the ruling BN coalition), and the opposition alliance, Pakatan Rakyat (PR).
• The PR won control of Perak in the March 2008 general election, but the resignation of four assembly members from among its ranks in February has reduced the PR's representation to a minority in the state assembly.
• In February UMNO announced its intention of wresting power from the PR and forming a new administration in Perak.
• Bank Negara Malaysia (the central bank) sanctioned a large interest rate cut in late January, when it reduced the overnight policy rate to 2.5%, from 3.25% previously.
• The government announced in February that it plans to launch a second stimulus package soon.
• The value of merchandise exports continued to decline in November 2008. However, owing to the fact that most exports of liquefied natural gas (LNG) are tied into long-term contracts, LNG exports continued to perform well.

Source: Country Report