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Malaysia Business Forecast Report Q1 2010

Published by: Business Monitor International

Published: Oct. 30, 2009 - 64 Pages


Table of Contents


Executive Summary
Bickering Minority Partners Drag To Barisan Nasional
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Partners Drag On Barisan Nasional’s Multiracial Push
The ruling Barisan Nasional coalition stands to lose further support from Chinese and Indian minorities to
the opposition Pakatan Rakyat, if the ongoing internal squabbles of the minority parties are not resolved amicably.
Table: Malaysia Political Overview
Long-Term Political Outlook
Ethnic Relations Still Cloud The Horizon
Malaysia’s ethnic diversity will continue to influence domestic politics, while the rise of a stronger opposition since
the March 2008 elections opens up a myriad of possibilities in the political arena over the longer term.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Outlook For 2010 Brightens Following Encouraging Q209 Data
The outlook for the Malaysian economy for 2010 has improved significantly, as the effects from fiscal stimulus and
monetary easing kick in.
table: ECONOMIC ACTIVITY
Monetary Policy
BNM To Keep Rates Low Amid Weak Recovery
We expect Bank Negara Malaysia to maintain its benchmark overnight policy rate at 2.00% over the coming months
and anticipate rate hikes only in H210, when there are clearer signs of an economic revival.
table: MONETARY POLICY
Fiscal Policy
Goods And Services Tax May Resolve Budget Woes
The introduction of a goods and services tax (GST) will be a positive for fiscal consolidation.
table: FISCAL POLICY
Banking
Central Bank Act: Clarity To Improve Operating Environment
The Central Bank of Malaysia Act 2009 will come into force in November, which we believe will enhance Malaysia’s
attractiveness as a financial hub due to its clarity in defining the central bank’s role within the banking sector.
Chapter 3: 10-Year Forecast
The Malaysian Economy To 2019
Stalled Reform Process Poses Downside Risks To Growth
Following a brief period of below-trend growth in 2009 and 2010, we are forecasting real GDP growth to remain above
4.0% throughout the rest of our 10-year forecast period, as domestic demand and the service sector replace exports
and manufacturing as the key drivers of growth.
Table: Long -Term Macroeconom ic Forecasts
Chapter 4: Special Report
The World’s Fiscal Conundrum
Bleeding Red Ink Across The Globe
Table: WORLD GOVERNMENT EXPENDITURE INDICATORS
Table: WORLD GOVERNMENT REVENUE INDICATORS
Table: WORLD FISCAL BALANCE INDICATORS
Chapter 5: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Table: BMI’s Asia Pacific Business And Operational Risk Ratings
Institutions
Table: BMI’s Asia Pacific Legal Framework Ratings
Infrastructure
Market Orientation
table: ASIA, ANNUAL FDI INFLOWS
Table: BMI’s Asia Pacific Trade Ratings
Table: Top Export Destinations (US$mn)
Operational Risk
Chapter 6: Key Sectors
Textiles & Clothing
Table: Textiles And Cloth ing Product ion And International Trade, 2006-2013
Shipping
TABLE : KEY TRADE INDICATORS
Chapter 7: BMI Global Assumptions
Global Assumptions
TABLE: GLOBAL ASSUMPTIONS
TABLE: GLOBAL & REGIONAL REAL GDP GROWTH

Abstract

After two quarters of economic contraction, Malaysia has managed to return to a positive growthtrajectory as of Q209 and is expected to sustain positive quarter-on-quarter expansion for theforeseeable future, on the back of strong fiscal and monetary stimulus measures. Nevertheless,the sharp 7.8% quarter-on-quarter decline in Q109 would mean that overall growth is still expectedto come in at -3.4% for the whole of 2009, followed by a modest recovery of 2.7% the followingyear. On the political front, the ruling Barisan Nasional is facing internal discord within its minoritypartners, which may reduce voter support if left unresolved. Meanwhile, the opposition PakatanRakyat alliance is planning to formalise its coalition, which may improve its electoral prospectsgoing forward.

T he ruling Barisan Nasional coalition has been facing power struggles within the minority partnersof the coalition - namely the Malaysian Chinese Association and the Malaysian Indian Congress.We caution that the alliance is at risk of losing significant support from Chinese and Indian votersif their internal issues are not resolved amicably. Meanwhile, the decision by the three oppositionparties to formalise their Pakatan Rakyat alliance will serve to boost their standing in the eyes ofthe electorate, although their ideological disparity will continue to be a stumbling block.

The Malaysian economy emerged from a technical recession in Q209, growing by a firm 4.8% qo-q, after shrinking by 7.8% and 3.4% in Q109 and Q408, respectively. In all, we believe that thegovernment’s aggressive fiscal and monetary expansionary policies helped stem the economicdecline and set the stage for a modest recovery. However, given the high level of uncertainty,the Bank Negara Malaysia is likely to keep the benchmark overnight policy rate on hold at 2.00%through H110 to aid growth. We are expecting Malaysia’s real GDP to decline by 3.4% in 2009,before rebounding in 2010 to expand by 2.7%.

Malaysia scores 61.5 in our business environment ratings, placing it at an above-average 36th(from 145 ranked markets) in the world and eighth in Asia. However, the country still lags whencompared with regional competitors like Hong Kong and Singapore, which are ranked 2nd and 1stin the world, respectively. This is due largely to Malaysia’s weaker scores in our Institutions andMarket Orientation sub-index. Meanwhile, the newly launched East Coast Economic Region SpecialEconomic Zone may provide more impetus for foreign players to invest in Malaysia. However,underlying issues including corruption and cumbersome bureaucracy need to be addressed.

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