Economy may contract by1.19% in 2009

By JAGDEV SINGH SIDHU

Drop in exports and slowing domestic demand forecast for first half

KUALA LUMPUR: The Malaysian economy will most probably see a full blown recession this year given the steep deterioration in recent economic activities both locally and globally.

A poll of economists’ expectations for 2009 projects the economy would contract by 1.19% this year as the slump in exports and slowing domestic demand bite hard especially in the first half of the year.

“The first half will be weak but I am expecting stabilisation late in the year on a recovery in exports and domestic demand,’’ said Affin Investment Bank economist Alan Tan.

The weaker-than-expected economic performance in the fourth quarter of last year saw some economists cutting their 2009 growth expectations, and made a technical recession almost a certainty.

“At the moment we expect Malaysia to go through a year of contraction in 2009 and (the economy) will likely rebound in 2010,’’ said RHB Investment Bank Bhd economist Peck Boon Soon in an e-mail reply.

Slumping activity across the board in all key segments of the economy such as manufacturing and services, with the exception of government consumption, suggests that the economy will be hard pressed to avoid a recession.

But there are hopes that the huge stimulus plan the Finance Ministry will implement will work its way into the economy, possibly lifting economic growth in the second half of the year and 2010.

AmResearch Sdn Bhd senior economist Manokaran Mottain said that although the fourth quarter number was weaker than expected, what mattered most was the outlook ahead. And that, for the immediate term, does not look rosy.

“After announcing a 0.1% growth, there will be a technical recession,’’ he said, adding that the contraction in exports announced by some of Asia’s large trading countries such as Singapore and Taiwan indicated tough times for Malaysian exports.

“Malaysia’s export trend would not be anything different from the rest in the region.’’

The huge contraction in manufacturing activity would also be a drag on growth in the first half of this year, said Citigroup Inc economist Kit Wei Zheng in a report.

“With Malaysia’s manufacturing slump relatively shallow compared with past recessions, manufacturing adjustment could be prolonged by an additional quarter, compared with past recessions,’’ he said.

“Base effects, and possibility of a near term bottom in manufacturing, could imply a slower rate of year-on-year contraction from the third quarter this year.’’

Maybank Investment Bank in its report said indicators for the first half year were bearish. Energy consumption was down and so was the flow of loans.

It said spending by consumers, seen by the growth in credit card transactions, had slowed significantly and that car sales continued to fall.

“After the 4.6% growth last year, we see the economy contracting by 1.3% this year as the negative feedback loop from the financial crisis on real economy gathers momentum, before bouncing back by 3% in 2010 on the effect of easing global and local monetary policies as well as fiscal stimulus,’’ it said.

While spending on construction related activity would help the economy after the stimulus package was implemented, Tan said other factors too needed to be watched.

“If we don’t see a recovery in the US and global economy in the third quarter, then our GDP numbers will be worse,’’ he said.