Malaysia's economy faces test in Q4

20:18, November 29, 2010      

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The Malaysian economic performance of the fourth quarter this year will be a rigorous test to the country's economy when the influence of positive factors are fading.

In the first half of 2010, the Malaysian economy has grown rapidly, driven mainly by restocking activities.

The Malaysian economy surged by 10.1 percent and 8.9 percent in the first two quarters of 2010 respectively, compared to contractions of 6.2 percent and 3.9 percent in the same quarters of 2009.

However, with those factors disappearing, the Malaysian economic growth rates will start to stabilize and restore the normal level.

Demand from Europe, the United States and other developed economies is still sluggish, resulting in the sharp decline of the growth of Malaysia's manufacturing sector from 15.9 percent in the second quarter to 7.5 percent in the third quarter this year.

The slower growth rate was reflected by fewer orders for local goods, particularly electrical and electronic products, from developed economies.

This, coupled with the ringgit appreciation against the U.S. dollar, has prompted the country's third quarter gross domestic product (GDP) growth to drop to 5.3 percent.

Although analysts have generally anticipated a slower GDP growth in the second half of 2010, the 5.3 percent growth is lower than the expectations of the majority.

During the quarter, private consumption grew 7.1 percent, while gross fixed capital formation expanded by 9.8 percent, driven mainly by capital expenditure from the private sector. However, this was very much offset by the 10.2 percent contraction of public consumption.

Moving forward, the impact of weak external demand and currency appreciation are expected to continue fermenting in the fourth quarter.

At the same time, Malaysian trade officials said that the country's major exports such as crude palm oil and computer chips were likely to face a further slow down in the last quarter of the year.

To sustain growth, the Malaysian government has embarked on various programs, including the Economic Transformation Plan, to transform the country into a knowledge-based, high-income and developed economy by 2020.

The government has also intended to boost domestic demand and investments as it has been increasingly difficult to woo foreign direct investment, given the fact that the developed economies have not gained recovery fully from the global financial crisis.

Lauding the Malaysian government's move, experts, however, advised the government to expedite the implementation of various economic programs as it takes time for the programs to deliver the desired results.

Strengthening trade relations with neighboring countries and emerging economies is also crucial in order to avoid over-reliance on Europe, the U.S. and other developed economies.

Mohamed Jawhar Hassan, chairman of the Institute of Strategic and International Studies (ISIS) Malaysia, told Xinhua in a recent interview that the fact that Asia, particularly China and India, is rising, is undeniable.

Taking China as an example, Jawhar stressed that the populous country offered countries in the region tremendous opportunities for trade and investment.

"Let us look at infrastructure development. If we can participate (in it), there are tremendous opportunities, other than just building roads and railways. This is never provided by any other economy or country before," said Jawhar.

The Malaysian economy is expected to grow at seven percent this year following a contraction of 1.7 percent in 2009. A minimum of 3.7 percent growth recorded in the fourth quarter is sufficient to achieve the seven percent annual growth target.

Source: Xinhua


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