Country Report Malaysia July 2009

Outlook for 2009-10

• Attempts by both the ruling Barisan Nasional (BN) coalition and the opposition Pakatan Rakyat (PR) to increase their representation in national and state parliaments will ensure that politics remains fluid in 2009-10.
• The Economist Intelligence Unit expects the BN to remain in power in 2009-10. The ruling coalition still has a sufficiently large parliamentary majority to pass the bulk of new legislation unchallenged.
• There is a risk of mass demonstrations if the leader of the PR, Anwar Ibrahim, is found guilty of sodomy in a trial due to start in July.
• In the light of the latest quarterly GDP data, we have revised down our real GDP forecast for 2009 and now expect the economy to shrink by 5.2% this year, compared with a projected contraction of 3% previously.
• Malaysia is expected to experience mild deflation in 2009 as domestic demand weakens and global prices for oil and raw materials fall sharply.
• The merchandise trade surplus will fall in 2009-10. Although the current-account surplus is also expected to contract over the next two years, it will remain sizeable.

Monthly review

• In May the government adopted a tough stance towards corruption, pledging to launch formal investigations against those responsible for massive cost overruns in the construction of a regional industrial park.
• Divisions in the opposition Parti Islam se-Malaysia (PAS) were exposed at its June conference, as PAS debated the merits of holding talks on the formation of a unity government with the ruling United Malays National Organisation.
• A member of the PR alliance won the by-election for the state assembly seat of Penanti, in Penang, at the end of May, but a low voter turnout pointed to by-election fatigue on the part of the electorate.
• During official visits to China and Singapore in recent weeks the prime minister, Najib Razak, appeared determined to strengthen economic ties within the Asia region.
• In May the government announced that work had begun on the drafting of the Tenth Malaysia Plan, its medium-term spending plan for 2011-15. A new agency has been established to formulate a new economic model.
• Malaysia's real GDP contracted by 6.2% year on year in the first quarter of 2009??