Malaysia Business Forecast Report Q2 2009

Publication Date	February 2009
Publisher	Business Monitor
Product Type	Report
Pages	70
ISBN Number	not applicable
Product Code	BMI03428

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Summary

Political And Economic Challenges Await New Premier The Malaysian economy showed significant signs of weakening in Q308 as headline growth slowed from 6.7% year-on-year (y-o-y) in Q208 to 4.7%, led by a slump in export growth. This marked a three-year low, but perhaps most worrying is the fact that it was only two quarters earlier that real GDP growth came in at a three-and-a-half year high of 7.4%. With recent data releases confirming that the sharp slowdown has extended into Q408, we have revised down our 2009 growth forecast for Malaysia from 3.1% to 1.4%. Moreover, with the global economy unlikely to pick up until the first half of 2010, we have revised down our 2010 growth forecast, from 4.6% to 3.2%.

Deputy Prime Minister Najib Razak faces his first major test ahead of his succession to the premiership in March when residents of the Kuala Terengganu constituency head to the polls in a by-election on January 17. Failure to secure a convincing victory could undermine his tenure before it has even begun, and, even worse, strengthen the momentum of to the opposition. However, we caution that even if Najib does survive his first challenge, 2009 will be an extremely testing year for him and his administration as he battles to reform the beleaguered UMNO against a backdrop of sharply slowing economic growth.

Bank Negara Malaysia (BNM)'s decision to cut its benchmark overnight policy rate by 25bps at its November 24 2008 policy meeting signals a firm shift towards an easing bias. With economic growth and inflation both projected to slow over the coming 12 months, we are now expecting the bank to deliver a further 50bps worth of interest rate cuts in 2009. However the onus to keep the economy buoyant in 2009 may fall on fiscal policy. With a budget deficit already forecast to reach 4.3% of GDP, the government's options will remain constrained even on this front.

Malaysia scores a solid 61.5 in BMI's Business Environment Ratings (BER), placing it 36th (out of 167 ranked countries) in the world and 6th in Asia (behind Singapore, Hong Kong, South Korea, Japan and Taiwan). However, there are several areas in which Malaysia severely lags behind its competitors. Most notably, Malaysia underperforms in the labour market component of our Infrastructure sub-index, with a score of 52.6 placing it 95th, and in the bureaucracy component of our Institutions sub-index, with a score of 44.9 ranking it 84th. However, Malaysia's greatest weakness is in the government intervention component of our Market Orientation sub-index, where a score of 43.7 places it a lowly 98th.

Content

Executive Summary
- Political And Economic Challenges Await New Premier
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- By-Election To Provide Crucial Test For Ruling Coalition
- The Kuala Terengganu by-election will provide Deputy Prime Minister Najib Razak with his first major test ahead
- of his succession to the premiership in March
- TABLE: POLITICAL OVERVIEW
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Growth Prospects Dim Further
- We have revised down our 2009 growth forecast for Malaysia from 3.1% to 1.4% after the latest industrial
- production data revealed that factory output contracted at its fastest pace in seven years in November
- TABLE: ECONOMIC ACTIVITY
- Monetary Policy
- Rate Cut Suggests Further Easing Lies Ahead
- Bank Negara Malaysias decision to cut its benchmark overnight policy rate by 25bps at its November 24 2008
- policy meeting signals a firm shift towards an easing bias, and with economic growth and inflation both projected
- to slow over the coming 12 months, we are now expecting the bank to deliver a further 50bps worth of interest
- rate cuts in 2009
- TABLE: MONETARY POLICY
- Exchange Rate Policy
- Expect Further Ringgit Weakness In 2009
- Having shed 4.06% against the dollar in 2008, we are expecting the ringgit to depreciate further in 2009 as a
- weakening global economy continues to apply downward pressure to the beleaguered unit
- TABLE: EXCHANGE RATE POLICY
- Balance of Payments
- Position To Remain Secure Despite External Headwinds
- With Malaysias export sector set to continue taking a battering in 2009 as the global economy dips further into
- recession, its current account surplus is set to shrink from a projected 12.7% of GDP in 2008 to 10.0%
- TABLE: BALANCE OF PAY MENTS
Chapter 3: 10-Year Forecast
- The Malaysian Economy To 2018
- Stalled Reforms Pose Risk To Growth
- Following a brief period of below-trend growth in 2009 and 2010, we are forecasting real GDP growth to remain
- above 4.0% throughout the rest of our 10-year forecast period, as domestic demand and the service sector
- replace exports and manufacturing as the key drivers of growth
- TABLE: Long-Term Macroeconomic Forecasts
Chapter 4: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest and least discussed wild cards that could rear its head in 2009 is dramatic political
- upheaval in China
- United States
- Europe
- Big Trouble For European Banks In 2009
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will
- combine to spell trouble for the financial services sector in 2009
- TABLE: Banks Leverage Ratios
- TABLE: Assets As % of Home Country GDP
- TABLE: Assets As % of Home Country GDP When Euro zone Is Considered Home Country
- TABLE: Exposure As % of Tot al Exposure To Region
- TABLE: Banks Foreign Exposure (US$ mn)
- TABLE: Exposure As % of National GDP
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- TABLE: BMIs ASIA PACIFIC BUSINESS AND OPERATIONAL RISK RATINGS
- Institutions
- TABLE: BMIs ASIA PACIFIC LEGAL FRAMEWORK RATINGS
- Infrastructure
- Market Orientation
- TABLE: ANNUAL FDI INFLOWS TO ASIA
- TABLE: BMIS ASIA PACIFIC TRADE RATINGS
- TABLE: TOP EXPORT DESTINATIONS (US$MN)
- Operational Risk
Chapter 6: Key Sectors
- Telecommunications
Executive Summary
- The Malaysia telecommunications industry grew rapidly in 2008 with a high number of mobile virtual network
- operators (MVOs) entering the market
- TABLE: MALAYSIA N TELECOMS SECTORS INTERNET HISTORIC DATA & FORECASTS
- Pharmaceuticals
- Government efforts to lower healthcare spending, which prompted new regulations, will stimulate the generics
- market
- TABLE: OTC MARKET INDICATORS, 2003-2012 (US$MN UNLESS OTHERWISE STATED)
Chapter 7: BMI Global Assumptions
- Global
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: GLOBAL AND REGIONAL REAL GDP GROWTH, % chg y-o-y
- Economic Activity
- TABLE: DEVELOPED STATES, REAL GDP GROWTH FORECASTS
- TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
- TABLE: DEVELOPED MARKET EXCHANGE RATES
- Monetary Policy
- Commodities
- TABLE: EMERGING MARKET EXCHANGE RATES