Country Report Malaysia June 2008

Outlook for 2008-09

• The poor performance of the ruling Barisan Nasional (BN) coalition at the general and state elections in March 2008 is expected to prompt a series of leadership contests this year in the parties making up the coalition.
• Despite its internal battles, the BN is expected to stay in power in 2008-09, as it has a large enough parliamentary majority to pass the bulk of new legislation unchallenged.
• Anwar Ibrahim, the de facto leader of the largest opposition party, the Parti Keadilan Rakyat, will continue in his attempts to persuade BN legislators to switch sides, but he faces a number of obstacles in the months ahead.
• The Economist Intelligence Unit expects real GDP to grow by an average of 5.8% a year in 2008-09.
• In the light of the latest increases in domestic fuel prices, we have revised up our inflation forecast and now expect consumer price inflation in 2008 to average 5.2%, compared with 2.8% previously.
• The ringgit is expected to remain on an appreciating trend against the US dollar, averaging M$3.18:US$1 in 2008 and M$3.13:US$1 in 2009.
• The merchandise trade surplus will widen to US$37.9bn in 2008, from an estimated US$35.8bn in 2007.

Monthly review

• In May Mahathir Mohamad, the previous prime minister, gave up his life membership of the United Malays National Organisation (UMNO), the largest party in the ruling BN, in protest against the current prime minister.
• In a bid to dissuade BN parliamentarians from crossing over to the opposition, the government has dropped hints that it might call a snap election.
• UMNO scored a major coup in May when Ezam Mohd Nor, the former political secretary to Mr Anwar, rejoined the party.
• At the start of June the government relaxed price regulations in the steel and cement industries, lifting the ceiling prices for both products.
• The government has set a ceiling for the price of two popular local types of rice, in its bid to promote food security.
• The government announced a radical change to Malaysia's fuel subsidy scheme in early June, sanctioning a 41% increase in petrol prices. Owners of small vehicles will receive a cash rebate to offset their increased fuel costs.
• The economy performed strongly in the first quarter of 2008. Real GDP grew by 7.1% year on year, driven by buoyant household consumption.