Malaysia Faces Risk Of Prolonged Slowdown

KUALA LUMPUR: Malaysia’s economy is not facing the risk of further downside in growth but rather the risk of a prolonged slowdown, said ANZ Banking Group Ltd chief economist for Asia Paul Gruenwald.

“We are not worrying about things getting worse, we worry about when the recovery will come,” he said, pointing out that the Malaysian economy would recover only after the economies of advanced nations had revived.

He expected the US and European economies to recover in late 2009 or early 2010.

Speaking after his talk on The Economic Outlook For Malaysia and The Asian Region In 2009 yesterday, Gruenwald projected the country’s gross domestic product (GDP) to grow by 1% and 2.5%-3% this year and in 2010 respectively.

He said this year’s slow growth would be supported by domestic consumption, as the manufacturing and export sectors would continue to be weak.

“However, we don’t expect a growth trend, which will be 4% to 5%, until the end of 2010 or early 2011,” he said.

On whether China’s economy would be able to save Asian countries, Gruenwald said even if China could restore its growth to 8%-9% this year, the benefit to the rest of the region was likely to be limited.

“Exports from the rest of Asia to China appear equal to those to the US. However, if you factor in China’s role in the processing trade, exports to China from the rest of the world look modest,” he said.

He added that China comprised half of Asia’s GDP and most of the country’s economic growth came from investment, domestic consumption and exports.

With the collapse of demand from the US and Europe, the only pillar left supporting Asia’s growth was consumption, he said.

Gruenwald said the US dollar would remain on an uptrend as the global economic crisis continued, but the momentum should slow down as uncertainty dissipated.

“We are going to see general Asian currencies weaken against the US dollar. When the crisis is resolved and recovery begins, we will see the US dollar start to depreciate.

“Until that time, (we expect) the peak of 3.8 for the ringgit in the third or fourth quarters of this year,” he added.

Source: TheStar