Malaysia Business Forecast Report Q4 2008 : Market Research Report

Malaysia Business Forecast Report Q4 2008

Published by: Business Monitor International

Published: Jul. 28, 2008 - 58 Pages

Executive Summary: Political Uncertainty Dictating Play
Chapter 1: Political Outlook: SWOT analysis; BMI Political Risk Ratings; Domestic Politics; No End In Sight For Political Woes; Political tensions in Malaysia continue to soar, with the latest turn of events reigniting uncomfortable; memories of 1998 when the country experienced its last and biggest political crisis.
TABLE: MALAYSIA POLITICAL OVERVIEW
Chapter 2: Economic Outlook: SWOT analysis; BMI Economic Risk Ratings; Economic Activity; Growth Forecast Remains Unchanged; Malaysia’s economy retained its robust growth momentum in Q108, slowing only moderately from the previous; quarter’s three-and-a-half year high of 7.3% year-on-year (y-o-y) to expand by 7.1%, as net exports rebounded; sharply and domestic demand remained robust.
TABLE: ECONOMIC ACTIVITY: Fiscal Policy; Populist spending Plans Raise Fiscal Concerns; Recent domestic fuel price hikes were a necessity to prevent Malaysia from slipping into a budgetary crisis,; but the knock-on effects of their implementation may yet undo the government’s prudent work on the fiscal front.
TABLE: FISCAL POLICY: Monetary Policy; Central Bank Rhetoric still Not Hawkish Enough; In light of the government’s June fuel price hikes, we have revised up our average inflation forecast for 2008; from 2.4% to 4.1%, and are now expecting at least 25bps worth of interest rate hikes from the central bank; by year-end.
TABLE: MONETARY POLICY: Exchange Rate Policy; Short-Term Pain To be Followed By long-Term Gains; Our long-term outlook for the ringgit remains bright, as robust economic growth, a substantial current account; surplus and ongoing FX liberalisation help to steer the unit towards MYR2.50/US$ by the end of our five-year; forecast period.
TABLE: EXCHANGE RATE POLICY
Chapter 3: 10-year Forecast: The Malaysian Economy To 2017; Robust Growth Potential; We are forecasting real GDP growth to remain above 4.0% throughout our 10-year forecast period, as domestic; demand and the service sector replace exports and manufacturing as the key drivers of growth.
TABLE: 10-year Macroeconomic Forecasts
Chapter 4: Special Report: Mega-Urban Regions
TABLE: THE WORLD’s 30 LARGEST URBAN AGGIOMERATIONS
TABLE: THE WORLD’s RICHEST CITIES IN 2020 By GDP
TABLE: THE WORLD’s FASTEST GROWING URBAN AREAS BY POPULATION

Abstract

Political Uncertainty Dictating Play

While the recent robust momentum of economic growth should help keep real GDP expansionwell-supported, we are still expecting expansion to continue to moderate throughout theremainder of 008. Malaysia’s economy retained its strong growth impetus in Q108, slowingonly moderately from the previous quarter’s three-and-a-half-year high of 7. % year-on-year(y-o-y) to expand by 7.1%, as net exports rebounded sharply and domestic demand remainedrobust. Yet, with risks to both the critical export sector and domestic demand firmly skewed tothe downside, in view of a more hostile external environment and the threat of tighter monetaryconditions in response to burgeoning inflationary pressures, we retain our full-year growthforecast of . %.

Four months on from the ruling Barisan Nasional (National Front) coalition’s worst-ever performancein national elections, political tensions in Malaysia continue to soar, with the latest turn ofevents reigniting uncomfortable memories of 1998 when the country experienced its last and biggestpolitical crisis. The government finds itself locked in a legal battle with opposition leader andformer deputy prime minister Anwar Ibrahim, further undermining its rapidly evaporating popularity,while tentative succession plans paving the way for beleaguered Prime Minister Abdullah AhmadBadawi’s departure are unlikely to have the desired effect of reducing political uncertainty.

While recent domestic fuel price hikes were a vital necessity to prevent Malaysia from slipping intoa budgetary crisis, the knock-on effects of their implementation may yet undo the government’sprudent work on the fiscal front. Under intense pressure following March’s dismal election performance,the government may yet be tempted into indulging in populist spending in order to bolster itsrapidly declining popularity. Meanwhile, the fuel price hikes threaten to send inflation rocketing tomulti-decade highs, posing a significant challenge for the central bank as it tries to balance pricestability against maximising economic growth.

Malaysia’s score of 61.5 in our Business Environment Ratings places it rd (from 167 rankedcountries) in the world and fifth in emerging Asia. The high quality of the country’s physical andfinancial infrastructure sees it score an impressive 65.7 in the infrastructure section of the ratings,but this fails to compensate for a score of 9. for institutions and 9. for market orientation.Excessive bureaucracy and a weak legal framework weigh on the former, while high levels ofgovernment intervention drag down the latter. Until these shortcomings are adequately addressed,Malaysia will continue to lag behind its regional competitors as a primary choice of location in whichto conduct business.

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Malaysia Business Forecast Report Q4 2008

Table of Contents

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