Published April 16, 2009

M'sian economy set to improve in H2: Zeti

This is due to govt's stimulus package, supportive monetary environment

By S JAYASANKARAN
IN KUALA LUMPUR

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IN one of the first public statements on the economy by a senior government official, central bank governor Zeti Akhtar Aziz said yesterday that the Malaysian economy would be in 'a better position' in the second half of the year because of the effects of the fiscal stimulus package and a supportive monetary environment.

Ms Zeti: Expects the effects of the crisis engulfing the developed economies to persist throughout the first half of the year

Last month, the government announced a RM60 billion (S$25 billion) stimulus package aimed at reflating the economy, out of which RM15 billion are actual funds with the rest being indirect means such as financial guarantees. In addition, the central bank has slashed rates by over 150 basis points to 2 per cent currently,

Ms Zeti noted that some sectors of the economy were still experiencing growth although external demand had shrunk significantly. 'Our export numbers are bad,' she told reporters. 'But there is a need to sustain the domestic economy.'

Exports in January and February fell between 27 and 30 per cent and although economists think the pace of the falls will taper off, Ms Zeti suggested that the negative effects of the crisis engulfing the developed economies would persist throughout the first half of the year.

Asked whether there was a need to revise official projections of gross domestic product (GDP), Ms Zeti said: 'Right now we have made assumptions that the second half will stabilise and that the fiscal stimulus will be implemented. In the current environment our projection is more or less of flat growth.'

Meanwhile, the Malaysian Institute of Economic Research (MIER) disagreed with Ms Zeti yesterday, predicting that the country's economy will shrink 2.2 per cent in 2009.

However, Malaysia's premier economic think- tank stressed that the economy would bounce back and grow 3.3 per cent in 2010 in the wake of the global economic recovery.

'In light of deep declines in macro indicators, the gloomy business and consumer confidence, and dismal sectoral indices, we are obliged to revise Malaysia's growth forecast for 2009 downwards,' MIER said in a report. 'If exports shrink severely, the downturn could be more harmful.'

The institute had earlier forecast economic growth of 1.3 per cent for 2009 and 3.8 per cent for 2010. But the writing on the wall became clearer after the country saw its real GDP grow only 0.1 per cent year-on- year in 2008's fourth quarter because of plunging export sales.

Malaysia's official forecast for the economy this year is a range between a one per cent contraction and one per cent growth, which is the figure Ms Zeti was referring to.

MIER also said that the impact of Malaysia's second stimulus package is 'less certain' as it consists mainly of guarantees. 'Due to the larger indirect measures in the mini budget, the impact may be less certain than the traditional fiscal injection,' said MIER in a reference to the guarantees provided by the federal government.

'The actual public spending for social infrastructure and public works is only RM15 billion, or about 25 per cent of the total, which is not a large amount to be spent over a two-year period.' the institute noted in its report.

MIER predicted that the central bank could cut interest rates to 1.5 per cent or lower, from 2 per cent at present, to bolster the economy. It also forecast inflation at 2 per cent this year and unemployment at 4.8 per cent.