Diversification needed to sustain Malaysia's GDP growth

16:11, August 19, 2010      

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The Malaysian government must further diversify its economy and revenue sources to combat the negative impacts from its conventional business activities.

The United States is one of Malaysia's main export destinations but the world's largest economy is losing its recovery momentum, and may even head towards a double dip recession.

The Federal Reserve of the U.S. has repeatedly said that monetary policy will remain loose for a long time to stimulate business activities, but the U.S. congressional elections to be held in November has deterred the government to increase its deficit spending.

The thrifty spending attitude may dampen the economic recovery in the U.S., resulting in economic contraction by the end of 2010.

The direct impact on Malaysia, an export-led nation, is no doubt that the recovery of the exports sector will be dragged behind.

While Malaysia exported 10.1 percent of its total exports to the U.S. in June 2010, 11.1 percent went to the Europe.

However, the situation in the European Union, embroiled in the debt crisis, is not very much better than the U.S..

There are economists holding to the view that some European countries will remain in recession or will start contracting again as its recovery is still weak.

The European Union's statistics office Eurostat said last Friday that after suffering its worst post-war recession in 2009, the euro zone had shown signs of recovery but only at mere one percent in the second quarter of 2010.

Malaysia's gross domestic product (GDP) registered a spike of 10.1 percent in the first quarter but it slowed down to 8.9 percent in the second quarter, as announced by Bank Negara Malaysia, the country's central bank here on Wednesday.

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