|
|||||||
|
|
|
|||||
|
|
|||||||
MALAYSIAN
ECONOMY OUTLOOK
2001-2002
2nd
Quarter 2001 Update
EXECUTIVE
SUMMARY
The
fact that the Malaysian economy is slowing down has become manifest with 3.2 per
cent year-on-year GDP growth in the first quarter of 2001, and 3.7 per cent
contraction quarter-on-quarter. If
not for higher palm oil production, economic growth would have been even lower.
With industrial production and exports showing steeper declines, it is
very likely that the second quarter growth could be more dismal.
In tandem with slower economic growth, NPLs are creeping up. Retrenchments are on the rise again. With confidence softening and no sign of relief in external
conditions, it will take sometime for the economy to rebound.
The Malaysian economy is in the slowdown phase, but one thing for sure is
that it would not be as bad as the last crisis in 1998.
We will have to come to terms with the impact of the US economic
slowdown. This affair is not
isolated to us alone; the whole region is suffering from the sluggish global
economy.
Amidst much anguish, one
possibly good thing with a lower GDP growth rate is that import compression is
taking place again and that helps generate further trade surplus.
This will be a great help to support foreign reserves from declining
further, reducing the pressures on the ringgit peg.
There is little room left for further relaxation of monetary policy,
while the fiscal deficit is well into its fourth year now.
Of course, the expansionary policies have been beneficial to a certain
extent, but being a highly open economy, Malaysia’s
economic growth is very dependent on her export performance.
What is worrying is the there
are no clear signs that the US economy is bouncing back anytime soon, which has
prompted the Federal Reserve to cut interest rates for the sixth time in late
June. Economic conditions is
Europe, especially in Germany, are deteriorating as well, suffering from the
impact of the US slowdown. The
Japanese economy is on the brink of a recession when it was hit by a contraction
in the first three months of the year. Closer
to home, the Singapore economy is technically in recession with two consecutive
quarters of negative growth. Worsening global conditions will mean that the
riming in the growth rebound could be pushed back further. The will hurt the
Malaysia economy even more.
Based on global and domestic
economic trends, Malaysia’s GDP growth this year is more likely to be around
2.2 per cent. Until we see
improvement in the global economy and revival in the chips market, it is going
to be very difficult for Malaysia to revert back to a higher growth path. Weakening business and consumer confidence will also make it
much tougher to stabilise the economy. MIER’s
Business Conditions Index (BCI) went lower to 44.0 points while the Consumer
Sentiments Index (CSI) stood at 96.2 in the second quarter, which indicates that
the economy is close to recessionary tendencies.
The economy is projected to grow by 5.0-6.0 per cent in 2002, in tandem
with the expected rebound in the global economy and the upturn in the
electronics sector.
Private consumption growth was
reduced by half to 4.1 per cent in the first quarter 2001 from 9.9 per cent in
the last quarter of 2000, indicating that the impact of export contraction and
the weak stock market on consumption have been quite significant. The softening
in consumer confidence tends to aggravate this. In light of further slowdown in
income growth and prolonged weakness in the financial market, private
consumption is projected to decelerate to 3.4 per cent in 2001. On investment, is believed that most of the growth emanated
from public sector outlays and less so from the private sector.
Despite high approval figures, FDI inflows could be less forthcoming
given the slackening global economy. A
large reduction in the growth of capital imports and rising excess capacity
suggest that investment is turning sluggish.
Private investment is estimated to grow by 7.1 per cent in 2001.
Underpinned by the fiscal stimulus package, public investment would
expand by 9.1 per cent.
Deteriorating economic
conditions is US and Japan will send real exports (volume) reeling to a modest
growth of 1.3 per cent. Imports,
which are closely tied to exports performance and domestic demand, will show a
growth of 3.4 per cent. Sedated
economic growth will ease pressures on inflation, projected to be subdued at
below 2.0 per cent.
Source:
MIER, Sixth National Economic
Briefing;
July 17th, 2001;