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NEWS UPDATES Asean Affairs                       29  August 2011

Malaysia outstrips global economy

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Although weak economic sentiment and volatile equity markets have sapped investors' confidence in the state of the global economy, Malaysia may fare better driven by strong domestic consumption and further foreign inflows.

In an economic update report, AmResearch senior economist Manokaran Mottain ruled out the possibility of Malaysia's economy falling into a double-dip recession, saying robust levels of domestic demand along with ample liquidity will further drive growth, moving forward.

“Prospective gains from the Government's Economic Transformation Programme (ETP) will also provide additional support at the tail-end of the year, with some of the larger investments such as the MY Rapid Transit (MRT) project expected to be already under way in the last quarter of the year,” he said.

However, assuming a double-dip is averted, Manokaran said the short-term impact of an unstable global economy on Malaysia was certainly negative on the back of declining trade as well as external demand.

He said a sharp drop in the crude oil prices may also be a potential trigger for a gross domestic product (GDP) downgrade for Malaysia.

“While we expect a 5 percentgrowth rate to be achieved, given the current conditions, a negative would be the adverse impact of a very large drop in crude oil prices and any further delay in the ETP projects,” Manokaran said.

As a net exporter of oil, Malaysia still relies heavily on crude oil prices in terms of generating income for the country.

“As long as the full-year average lies between US$85 and US$90 a barrel, all is well within budget.

“While on a positive note, a sharp fall in crude oil may well mean a reduction in total subsidies spent by the Government, the net impact will however be detrimental to the Government's coffers and overall growth,” he said.

According to Manokaran, a possible quantitative easing in the United States would also lead to the appreciation of regional currencies, including the ringgit which is expected to rally further and appreciate beyond RM2.90 per US dollar.


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