Published January 16, 2009

KL, economists diverge on growth outlook

Govt firm on 3.5% growth in 2009 but critics think that is too optimistic

By PAULINE NG
IN KUALA LUMPUR

	Email this article
	Print article
	Feedback

THE Malaysian government is sticking to its 2009 economic growth forecast, even as more economists are cutting their predictions.

Mr Muhyiddin: Reckons there is no need to react hastily as the economic growth picture is not clear yet

The economy is expected to expand 3.5 per cent this year and, contrary to suggestions, is not in recession, International Trade Minister Muhyiddin Yassin said yesterday.

But many private economists disagree - and have slashed their estimates after a stream of worse-than-expected data.

One example is the Malaysian Institute of Economic Research (MIER). The independent think tank's growth assumption was similar to the government's at 3.4 per cent. But MIER cut that estimate yesterday to 1.3 per cent.

Monthly indicators have been losing momentum markedly, it said. Up to November 2008, industrial output contracted for three straight months and exports fell two months in a row.

At a briefing yesterday, MIER executive director Mohamed Ariff said: 'The picture is very clear - we are running into very difficult times.'

Although critics accuse the government of being too optimistic, or worse still, in denial, Mr Muhyiddin reckons the picture is not clear yet and there is no need to react hastily - at least until first-quarter growth numbers are out.

Playing down suggestions the economy is already in recessionary mode, he said yesterday the public should accept the government's announcements because they are based on evidence, which still points to growth.

'The government has realistic appreciation of what is happening,' he told a strategic outlook forum. He also said the government plans to do all it could to counter the effects of the global downturn.

Already, there have been hints that November 2008's RM7 billion (S$2.9 billion) economic stimulus package will be supplemented by another package, pegged by economists to be around RM7-10 billion.

This would swell the budget deficit from a forecast 4.8 per cent of GDP to around 5.5 per cent, but that is seen as still manageable provided the additional spending is in areas with substantial economic benefit.

MIER was one of the first to suggest that export-dependent Malaysia would not be shielded from the collapse in global demand. In October last year, it said there was a 40 per cent chance Malaysia would slide into recession.

This week, Citigroup Malaysia raised eyebrows when it suggested the economy is already in a technical recession. It pegged growth at 0.5 per cent this year, although most analysts see it at 2-3 per cent.

Even so, the debate is beginning to look like semantics.

Speaking at yesterday's strategic outlook forum, former finance and international trade minister Tengku Razaleigh Hamzah said that given Malaysia's demographic profile and oil exporter status, 'our baseline do-nothing growth figure is not zero per cent but closer to 4 per cent'.