Malaysia: Country Economic Forecast: 16 Mar 2012

Oxford Economics
March 16, 2012
10 Pages - SKU: OFE3876833
Countries covered: Malaysia

Annual export growth in ringgit terms slowed sharply in January but this was probably partly due to the timing of the Chinese New Year. Exports of commodities and metals slowed, although they may improve in February as commodity prices have picked up. The electronics sector remains subdued. While the stock market and the currency have rallied so far this year, the still-tense global background is likely to weigh on economic activity and, with total exports equal to nearly 100% of GDP, Malaysia is very vulnerable to weakening global demand. If the Eurozone were to sink into deeper recession, or China slows more sharply, then Malaysia's outlook could deteriorate significantly. Inflation eased to 2.7% in January but some risks remain. The central bank expects domestic demand to support growth; so having left rates unchanged since May 2011, we expect the policy interest rate to remain on hold in the coming months. Government spending picked up strongly in H2 and this fiscal boost is likely to continue this year since elections must be called by early 2013. The cabinet has approved the introduction of a national minimum wage for the first time in Malaysia's history. Although the external outlook is uncertain, strong fiscal spending and high commodity prices should keep domestic demand growth fairly robust, underpinning GDP growth of 4.8% for 2012 as a whole.

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