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NEWS UPDATES 2 December 2009

Think tank urges Malaysia to prepare third stimulus

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Malaysia may need a third stimulus package should the US economy go into a relapse next year, according to the Malaysian Institute of Economic Research (Mier), local business paper the StarBiz reported.

Executive director Prof Emeritus Datuk Dr Mohamed Ariff said in the event of a double dip recession in the US, Malaysia could use an additional 8 billion ringgit (1$=3.4 ringgit) to pump prime the economy and “that is something we can afford to have.”

“We may need an additional 8 billion ringgit if there is going to be a double dip (recession) in the US and elsewhere,” he told reporters after the Mier National Economic Outlook Conference 2010-2011 yesterday.

He said the government’s spending from the first and second stimulus packages amounted to only 22 billion ringgit of the total 67 billion ringgit under the packages.

“The second stimulus package would have exhausted itself by May,” he said.

The government has so far introduced two stimulus packages totalling 67 billion ringgit, with the first package at 7 billion ringgit in November last year and the second stimulus package worth 60 billion ringgit in March this year to cover a two-year period.

“We may have to brace ourselves for a slightly bigger budget deficit,” Ariff said, adding that the current national debt was small in comparison to what it was before and that of other countries in the region. The government is targeting a budget deficit of 5.6 percent of gross domestic product (GDP) for next year.

“Our national debt is 42 percent of GDP, Japan’s is 187 percent, India’s is 110 percent. So, by our own and regional standard it is small,” Ariff said, adding that 95 percent of the government debt was sourced domestically, and only 5 percent was foreign.

“However, the government needs to be prudent in handling the debt or else the country’s sovereign rating would suffer,” he said.

Meanwhile, the private think tank also expects the country’s economy to contract by -3.3 percent this year and expand by 3.7 percent next year, while it concomitantly forecasts GDP growth of 5 percent for 2011.

“The economy is doing much better than we had anticipated. It is a regional trend,” Ariff said. “Malaysia needs to grow by 1 percent in the fourth quarter to register growth better than –3 percent for the year. But we are still holding on the original forecast of -3.3 percent and wait to see the fourth quarter results,” he said.

However, he said all indications were that the economy would perform better than Mier’s forecast three months ago. Ariff also said downside risks were still prevalent and might perturb the road to recovery.

“While the worst is over and we are moving to positive growth territory, the future is uncertain. 2010 can be more challenging than this year and there are a lot of landmines to avoid, like asset bubbles, high oil prices and exchange rate risk.

“The recovery we see is still fragile. There is still a 50 percent chance of a relapse in the first half of next year. The growth we see in most economies is artificial growth engineered by huge fiscal stimulus,” he said.


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