Country Report Malaysia September 2009

Outlook for 2009-10

• Attempts by both the ruling Barisan Nasional (BN) coalition and the main 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 that is scheduled to resume in September.
• Following the release of empirical and anecdotal data, which point to signs of stabilisation in the Malaysian economy, we now expect real GDP to shrink by 3% in 2009 (previously we forecast a contraction of 5%).
• Malaysia is expected to experience mild deflation in 2009 as domestic demand weakens and global prices for oil and raw materials fall sharply from the highs that were recorded in 2008.
• The merchandise trade surplus will fall in 2009-10. Although the current-account surplus is also expected to contract in the next two years, it will remain sizeable.

Monthly review

• The authorities have been criticised for the way they dealt with a mass demonstration in late July. Water canons as well as tear gas were used to disperse people gathering to protest against the Internal Security Act.
• The Malaysian Chinese Association, the second-largest party in the ruling BN coalition, has been struggling to diffuse a feud between the party chairman and his deputy.
• The spread of the swine flu virus in recent months has caused alarm in urbanised parts of peninsular Malaysia, and prompted the government to declare a health emergency on August 17th.
• A public debt offering from the state energy company, Petronas, set an important milestone in corporate finance in Malaysia when it offered conventional bonds alongside an Islamic bond, or sukuk.
• Consumer and business sentiment improved markedly in the second quarter of 2009, according to the latest survey results published by the Malaysian Institute of Economic Research, a local research company.
• Malaysia experienced mild deflation in June, when overall consumer prices declined by 1.4% year on year.

Source: Country Report