Published March 26, 2009

Economy strong enough to take downturn: Zeti

Stimulus package, monetary easing to be felt by H2

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIA'S central bank yesterday acknowledged that the country would experience the full impact of the global downturn this year, but painted a picture of an economy sufficiently resilient to withstand the external shocks should conditions worsen.

Governor Zeti Akhtar Aziz reiterated the official forecast of gross domestic product (GDP) growth of between minus one per cent and one per cent this year, following a full year expansion of 4.6 per cent last year. 'There is a potential that growth in the first quarter could be negative because exports declined by 28 per cent (year-on-year) in January,' she said, but she observed that the first-quarter slump would also be more pronounced because growth in the corresponding quarter in 2008 was a robust 7.4 per cent.

Growth slipped to 0.1 per cent in the last quarter and a number of private economists believe that it could decline by up to 5 per cent on crumbling manufacturing and commodity exports.

Collapsing external demand is expected to reduce growth by 4 per cent. But Ms Zeti anticipates the impact of both the RM67 billion (S$27.9 billion) stimulus package and monetary policy easing should be felt by the second half - if not the second quarter.

Gross exports are projected to fall 25 per cent this year, but domestic demand and private consumption are expected to take up some of the slack, she said, provided the stimulus spending kicks-in in time and companies continue to get access to financing.

The services and construction sectors are also expanding, the former projected to grow 4.5 per cent and the latter 3 per cent.

Having slashed the key interest rate by 150 basis points since December to historical low of 2 per cent - the average base lending rate is now 5.9 per cent - Ms Zeti said that the focus now was ensuring that companies get access to funds so as to remain viable, rather than on easing rates further.

The strong financial system is a key comfort in this crisis. The banking sector is well-capitalised with excess capital of some RM38 billion - a buffer more than sufficient to manage any further deterioration in the system. Using the Asian financial crisis as a comparison, the governor pointed out losses to the sector had then totalled RM5.7 billion.

Ms Zeti said that although the ringgit has declined 9 per cent since the end of last year, it was poised to strengthen when global conditions normalise as it was well supported by Malaysia's low external indebtedness, robust international reserves, and healthy current account position.

Should the need arise, there was room for further measures, she said, including 'promoting new areas of growth'. Although she did not specify the areas, they are likely to be in the services sector, many expecting the government to announce the liberalisation of various sub-sectors next month.