THE STAR
By FINTAN NG
PETALING JAYA: RAM Holdings Bhd has drastically cut Malaysia’s gross domestic product (GDP) growth forecast for 2009 to 0.9% from 3.5% previously due to weak external demand, which it predicts will persist over the next several years.
Group chief economist Dr Yeah Kim Leng said in an economic outlook report it could take up to five years for countries affected by the combined credit and housing market crises to resume trend growth.
“Based on the baseline scenario, Malaysia’s real GDP is projected to record marginally positive growth of 0.9% in 2009, picking up in 2010,” Yeah said, adding that export demand, which is expected to contract 5% this year, posted the most significant downside risk.
He said it would be more challenging for export-oriented developing countries to sustain their traditional growth performance in the face of more feeble demand from the industrialised economies.
“Malaysia’s commodity-based industries will face more challenging times due to weak demand and low prices over the next one to two years,” Yeah said.
He said exports would stage a recovery in 2010 with a growth of 0.5% due to the low base effect.
“Gross merchandise exports and imports are projected to contract by 20% and 18% respectively, thereby maintaining the trade balance at a high level of RM100bil,” he said.
Yeah said the global slump would have negative knock-on effects on domestic demand, which is projected to post a weaker growth of 3.7% this year from 6.1% last year.
“A persistent decline in exports will push up the number of distressed companies, cutbacks in domestic spending and increased layoffs,” he said.
Yeah said growth would be supported by increased government spending and fiscal as well as monetary stimulus measures, including aggressive reduction of interest rates to arrest its decline as well as waning consumer and investor confidence.
“Our prognosis of a second-half recovery for both the global and domestic economies, albeit a gradual and weak one, is premised on the simultaneous and effective roll-out of fiscal and monetary stimulus packages across the crisis-hit industrialised economies, as well as those seeking to mitigate the effects of the global downturn,” he said.
Yeah said unemployment would exert downward pressure on private consumption, which is expected to increase 2.5% this year while public consumption, which is expected to rise 4.5%, would make up somewhat for the shortfall in private sector activities.
“Investment activity is also likely to remain sluggish, edging up an estimated 0.5% in 2009,” he said, with the public sector projected to record “a robust 10.1% expansion this year” through planned infrastructure projects and other pump-priming initiatives. Yeah said the manufacturing and construction sectors faced challenging prospects this year with expected declines of 5.5% and 0.5% respectively.
“The services sector will remain the primary driving force for domestic demand and is expected to chalk up a modest 3.8% growth in 2009 underscored by the resilient performance of the communications and financial services subsectors,” he added.
Yeah said the services sector “is likely to expand at an average pace of 5.6% annually between 2011 and 2015 (from 6.3% previously) while the manufacturing sector’s growth has been revised to 5.0% from 5.4% previously. For 2009, he said the rate of domestic inflation was expected to ease to between 1.5% and 2% with Bank Negara expected to cut its benchmark interest rate to 1.25%.
“Gross issuance of private debt securities is estimated to come in at RM25bil in 2009, with foreign issuers expected to continue tapping the ringgit bond market for financing arbitrage opportunities,” Yeah said.
He said more Malaysian Govern-ment Securities were expected to be issued this year to fund the stimulus packages.
This is also expected to push the country’s fiscal deficit to 6% from 5.5% of GDP in 2009, Yeah said.
Meanwhile, he said average annual GDP growth until 2020 had been revised to 4.5% from 5.7% in the last economic outlook report while total consumption is projected to increase 5.3% per annum between 2011 and 2015, easing to 4.6% for the 2016 to 2020 period, which translated to an average annual increase of 4.5%.
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