Malaysia Business Forecast Report Q1 2009

Troubles On All Fronts Continue To Intensify

Despite recording real GDP growth of 6.7% in H108, we maintain our full-year growth forecast of 5.5% for Malaysia, as a weakening global economy weighs on exports and elevated inflation hurts domestic demand, resulting in a disappointing second half of 2008. Meanwhile, with the global economic slowdown now looking set to be far more protracted than initially anticipated, we have revised down our 2009 growth forecast, from 5.1% to 4.7%. This would be the first time economic growth has dipped below 5.0% since 2001, and we caution that risks are skewed to the downside as a slowing global economy and persistent inflationary pressures at home combine to squeeze growth momentum in Malaysia.

Uncertainty over beleaguered Prime Minister Abdullah Ahmad Badawis future may have been resolved following his announcement that he will not contest party elections in March 2009, but we highlight that his decision not to seek re-election as United Malays National Organisation (UMNO) leader does not necessarily make Malaysias political outlook any clearer. Indeed, with a resurgent opposition continuing to pose a rising threat to the ruling Barisan Nasional coalitions long-held dominance of Malaysias political scene, and mounting economic woes and sensitive racial issues still needing to be addressed by the government, we believe that Abdullahs successor is unlikely to find things any easier in the hot seat.

With the central bank keeping its attention focused on slowing growth, we expect Bank Negara Malaysia (BNM) to keep its benchmark overnight policy rates on hold at 3.50% for the foreseeable future. However, we caution that the banks laissez-faire attitude means that inflation will remain elevated throughout the remainder of 2008, and well into 2009. Meanwhile, the expansionary federal budget unveiled for 2009 has brought into question fiscal stability in Malaysia. We believe the governments 2009 budget deficit projection of 3.6% of GDP is somewhat optimistic, and are instead forecasting Malaysias fiscal shortfall to reach 4.3% of GDP.

Although standards of corporate governance have improved greatly in Malaysia in recent years, and despite the fact that foreign companies - in particular foreign manufacturing companies - continue to be welcomed with open arms, Malaysias business environment continues to disappoint. An overall score of 61.5 ranks it 36th (out of 167 countries), but places it firmly below regional competitors Hong Kong and Singapore - which score 82.2 and 83.8, respectively - as the countrys affirmative action policy serves as a serious barrier to foreign firms in a number of key areas, and corruption remains a key concern.

• Executive Summary
• Troubles On All Fronts Continue To Intensify
• Chapter 1: Political Outlook
  • SWOT Analysis
  • BMI Political Risk Ratings
  • Domestic Politics
  • Change Of Leadership Not Necessarily A Change For The Better
  • Uncertainty over beleaguered Prime Minister Abdullah Ahmad Badawis future may have been resolved following his announcement that he will not contest party elections in March 2009, but we highlight that his decision not to seek re-election as United Malays National Organisation (UMNO) leader does not necessarily make Malaysias political outlook any clearer.
• Chapter 2: Economic Outlook
  • SWOT Analysis
  • BMI Economic Risk Ratings
  • Economic Activity
  • Disappointing H208 Performance To Extend Into 2009
  • Despite recording real GDP growth of 6.7% in H108, we maintain our full-year growth forecast of 5.5% for Malaysia, as a weakening global economy weighs on exports and elevated inflation hurts domestic demand, resulting in a disappointing second half of the year.
  • Fiscal Policy
  • Populism Presents Significant Risk To Fiscal Stability
  • As we had previously warned, the expansionary federal budget unveiled for 2009 has brought into question fiscal stability in Malaysia.
  • Monetary Policy
  • Inflation To Remain Elevated As Central Bank Stays On Hold
  • With the central bank keeping its attention focused on slowing growth, we expect Bank Negara Malaysia (BNM) to keep its benchmark overnight policy rates on hold at 3.50% for the foreseeable future.
  • Although we expect robust economic growth, a substantial current account surplus and ongoing FX liberalisation should continue driving the currency higher over the long term, dimming growth prospects.
• Chapter 3: 10-Year Forecast
  • The Malaysia Economy To 2018
  • Stalled Reform Process - Risks To Growth
  • We are forecasting real GDP growth to remain above 4.0% throughout our 10-year forecast period, as domestic demand and the service sector replace exports and manufacturing as the key drivers of growth.
• Chapter 4: Special Report
  • Why The US Can Remain World Superpower
  • Wealth Is Shifting East...
  • The USs current financial woes will not necessarily undermine its position as a global superpower.
• Chapter 5: Business Environment
  • SWOT Analysis
  • BMI Business Environment Risk Ratings
  • Business Environment Outlook
  • Institutions
  • Infrastructure
  • Market Orientation
  • BMI Trade Ratings
  • Operational Risk
• Chapter 6: Key Sectors
  • Defence
  • Executive Summary
  • The defence budget should still witness healthy growth alongside the economy. Real GDP growth is forecast at over
  • 5% until 2009, before a contraction takes hold.
  • IT
  • Executive Summary
  • With the governments effort to drive IT adoption likely to lead to increased spending in several sectors, the total size of the domestic IT market is projected by BMI to increase from US$3.9bn in 2007 to around US$6.0bn in 2012.
• Chapter 7: BMI Global Assumptions
  • Global
  • United States
  • Eurozone
  • Japan
  • China
  • Commodities
• Tables
  • Table: Malaysia Political Overview
  • Table: Economic Activity
  • Table: Fiscal Policy
  • Table: Monetary Policy
  • Table: Exchange Rate Policy
  • Table: Malaysia Long-Term Macroeconomic Forecasts
  • Table: Geopolitical Power Index
  • Table: Bmi Business And Operational Risk Ratings
  • Table: Bmi Legal Framework Ratings
  • Table: Asia, Annual Fdi Inflows
  • Table: Top Export Destinations
  • Table: Malaysia Regional Armed Forces
  • Table: Malaysias It Industry - Historical Data And Forecasts (Us$Mn)
  • Table: Global Assumptions