Published May 29, 2009

Malaysia is in a technical recession: Najib

PM forecasts growth in real GDP terms for 2009 of minus 4-5%

By S JAYASANKARAN
IN KUALA LUMPUR

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PRIME Minister Najib Razak said yesterday that Malaysia 'is in recession' and forecast a worse-than-expected growth in real gross domestic product (GDP) terms for 2009 of minus 4-5 per cent. This compares to Kuala Lumpur's previous estimate of flat growth.

'Yes, we are in a technical recession,' Mr Najib told reporters. 'The third quarter will be slightly negative, and we will be positive for the fourth quarter.'

Mr Najib, who is also finance minister, said that ultimate recovery would hinge on global growth. 'I'm afraid our recovery depends on the world economic recovery that is contingent upon what happens in Europe and the United States.'

But he sidestepped the question on whether the government would undertake a fresh fiscal stimulus. 'We will monitor the situation closely,' said Mr Najib.

His comments follow Wednesday's announcement of a steeper-than-expected 6.2 per cent contraction in Malaysia's first quarter. Even so, some economists think that the worst is probably over.

It was the country's steepest slide in eight years and the Wednesday announcement from the central bank shocked the market, where the consensus among private economists was around 4 per cent. Every sector on the supply side - except construction - was down and, on the demand side, private consumption spending declined for the first time since 1998.

The sharper-than-expected fall-off in Malaysia mirrors similar trends in the region where Singapore, Taiwan and Korea all experienced contractions of 10.1, 10.2 and 4.3 per cent in the first quarter respectively.

The downturn is also likely to be used as fodder for the opposition which is expected to blame the government for not acting sooner and could prove a stern test for Mr Najib. On Wednesday, Mr Najib moved to contain the damage by announcing the appointment of former banker Amirsham Aziz to head an Economic Advisory Committee.

Mr Amirsham, a former chief executive of Maybank, will have ministerial status and his six to eight man committee, comprising both local and foreign experts, will report directly to Mr Najib. Its main task, Mr Najib said, was to draw up the blueprint for a new, high value-added economic model for Malaysia.

Mr Najib's reasoning stems from the increasing agreement that the old Malaysian export-dependent model is passe. Even so, the good news about the severity of the downturn, according to private economists, is that it could precipitate a faster-than-expected rebound because of fresh government spending that is expected to kick in by the second half and greater consumer spending due to the 'wealth effect' of a bubbling equity market.

However, central bank governor Zeti Akhtar Aziz was cautious on Wednesday regarding the prospects of recovery saying only that she expected an upturn in the second half. But she also warned that a contraction of 'similar magnitude' could occur in the second quarter.

Manokaran Mottain, an economist from the Arab-Malaysian Banking Group, was considerably more upbeat than Ms Zeti and thought that growth could return more strongly than expected in the final quarter of the year.

'We expect improving demand for Malaysian-made goods from both the regional and industrial economies,' said Mr Manokaran. 'This will be translated into a reduced rate of export declines. However, given the severity in the first quarter, we expect the manufacturing sector to remain in negative territory at least until the middle of the third quarter.'

The economist predicted gradually decreasing contractions of 4 and 2 per cent in the second and third quarters and a strong 4 per cent breakout in the last quarter, establishing 2009 growth at an overall minus 2 per cent.

For 2010, the economist predicted that Malaysia would grow between 3 and 4 per cent, 'largely due to the global recovery and the accumulated impact of the various monetary and fiscal measures taken by the government'.