Country Report Malaysia March 2009

Outlook for 2009-10

• Attempts by both the ruling Barisan Nasional (BN) coalition and Pakatan Rakyat (PR) opposition to increase their representation in national and state parliaments will ensure that the political scene remains fluid in 2009-10.
• The Economist Intelligence Unit expects the BN coalition to remain in power in 2009-10. BN still has a sufficiently large parliamentary majority to pass the bulk of new legislation unchallenged.
• There is a risk of mass demonstrations if the opposition leader, Anwar Ibrahim, is found guilty of sodomy.
• Following a raft of weak domestic economic data releases and a downward revision to our forecast for the global economy, we now expect the Malaysian economy to contract by 3% in 2009, compared with a fall of 1.8% previously.
• 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$33.7bn in 2009, from an estimated US$44.2bn in 2008. Although the current-account surplus is also expected to narrow in 2009, it will remain sizeable.

Monthly review

• The BN's attempt to form a new executive council in the state of Perak has been challenged by the PR. The growing number of legal challenges has left the state legislature in flux.
• The deepening political quagmire in Perak has not only raised questions about the constitutional role of the sultan, but also about the role of the king.
• The election commission plans to hold three by-elections on April 7th. Two of the polls are for seats in the state assemblies of Kedah and Sarawak, and the third is to contest a parliamentary seat in Perak.
• In February Bank Negara Malaysia (BNM, the central bank) announced a cut in the overnight policy rate, to 2% from 2.5%. It also cut the statutory reserve requirement, to 1% from 2%.
• Economic activity slowed considerably in the fourth quarter of 2008, with real GDP growing by just 0.1% year on year, compared with growth of 4.7% in the previous quarter.
• Merchandise exports declined by 7.4% year on year in the fourth quarter, following growth of 16.8% in the previous quarter.

Source: Country Report