Country Report Malaysia November 2009

Outlook for 2010-11

• The Economist Intelligence Unit expects the Barisan Nasional (BN) coalition to remain in power in 2010-11. The ruling coalition still has a sufficiently large parliamentary majority to pass the bulk of new legislation unchallenged.
• Political tussles between the BN and the main opposition Pakatan Rakyat (PR) will remain fierce as both sides strive to increase their representation in the national and state parliaments.
• There is a risk of mass demonstrations if the leader of the PR, Anwar Ibrahim, is found guilty of sodomy in a trial that is scheduled to resume in late 2009.
• We have revised down our GDP growth forecast for 2010, and now expect the economy to expand by 3% next year, compared with 3.9% previously. The recovery is expected to continue in 2011, when GDP will grow by 3.5%.
• Following a period of mild deflation in the second half of 2009, consumer price pressures are expected to build gradually during 2010 as domestic demand strengthens and global commodity prices stay on an upward trend.
• A pick-up in global trade as well as stronger domestic demand will lead to a slight deterioration in the trade balance, but Malaysia will continue to post substantial surpluses on its trade and current accounts in 2010-11.

Monthly review

• The BN won the Bagan Pinang seat in the Negri Sembilan state assembly in a by-election on October 11th, demonstrating a rise in support for the BN among the Malays as well as the smaller Chinese and Indian communities.
• In October the opposition PR announced that it was close to finalising a new manifesto. The common policy framework is likely to incorporate material from the separate manifestos of the three parties making up the alliance.
• The United Malays National Organisation (UMNO), the dominant party in the BN, has agreed a raft of reforms to its constitution that drastically alters the way in which party leaders are selected and elected.
• On October 23rd the prime minister, Najib Razak, who is also the finance minister, unveiled the 2010 budget. Instead of sanctioning a further increase in government spending, Mr Najib announced a package of cuts.
• The unemployment rate fell to 3.6% in the second quarter of 2009, from 4% in the previous quarter. The drop reflected a decline in the number of unemployed, as well as an increase in employment levels.
• The latest industry data point to further signs of stabilisation. Although industrial output continued to fall on a year-on-year basis in August, the pace of decline again moderated.