Malaysia's economic contraction revised to between 4% and 5%

By FINTAN NGFriday May 29, 2009

PUTRAJAYA: The worsening external economic situation has prompted a revision of the country’s economic performance to a contraction of between 4% and 5% for this year from a contraction of 1% and a growth of 1% before.

Prime Minister Datuk Seri Najib Abdul Razak said at a press briefing yesterday that the economic climate had deteriorated more than expected.

“In tandem with the new developments, the Government is revising the real gross domestic product performance of Malaysia for the year to a contraction of between 4% and 5% from a contraction of 1% and growth of 1% previously,” he said. “The revision is due to very weak external demand, which plummeted more than we expected.”

According to Najib, private sector investment had also fallen by 26% from a year ago while foreign direct investment was also down by half compared with last year.
On Wednesday, Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz announced that the economy had contracted by 6.2% in the first quarter (Q1) year-on-year.

Najib said the country was in a technical recession, adding that after Q1, the domestic economy was expected to undergo another two quarters of contraction before seeing modest growth in Q4. “We expect next year to be positive,” he said. Najib said the fall in exports (down by 25%) had had a cascading effect on the economy, leading to lower consumption. “Our economic recovery depends on the global economy recovering and that is contingent on the recovery in the US and Europe,” he noted.

On whether the economy had bottomed following the central bank’s release of Q1 economic numbers, Najib said that would depend very much on external figures, adding that any further revision of the country’s economic forecast would also depend on further developments in the external environment.

Bank Islam Malaysia Bhd senior economist Azrul Azwar told StarBiz the revision meant that the first three quarters of the year would be “really bloody”. “I’m quite surprised by the sharp downgrade in the outlook. My forecast was for a contraction of between 3% and 4%,” Azrul said, noting that the International Monetary Fund had forecast Malaysia’s economy to contract 3.5%.
Azrul said there would be some improvement in Q3 when the pace of contractions was expected to be smaller. CIMB Investment Bank Bhd economic research head Lee Heng Guie said his forecast for the year was unchanged at minus 3%.