Malaysia: Economy to Shrink 4%-5% in 2009

Malaysia's economy will shrink by 4%-5% in 2009, Prime Minister Najib Razak said yesterday, much more than an original projection of a 1% decline at most and the worst outcome in more than a decade. The Government is hoping the second half of the year will be better, with the economy contracting slightly in the 3Q before returning
to growth in the 4Q. The new full-year forecast would be the worst recession for Malaysia since the 1998 Asian financial crisis. Like other exporters in Asia, Malaysia has seen demand for its goods, mainly electronics, commodities and oil, hit by the global downturn. He added that Malaysia was already in a technical recession.
The recovery depends on the world recovery. (Bloomberg)

Comment: This official revised GDP projection number was well below our forecast of a 3% contraction in the year although we had heard rumors earlier of such a projection. However, in terms of the trend for quarterly GDP figures, we share the government’s view and have factored in a 2Q contraction just slightly less severe than 1Q numbers in our valuation with the preliminary figure of -5%. We then forecast a moderation to -2% in the 3Q before a slight recovery by +1% in the last quarter. In our opinion, this new Government forecast may just be a tentative gauge for the country in the effort to better manage expectations. We believe the Government may be revise upward its forecast when all the stimulus packages are effectively implemented as growth should be revived, especially in the construction sector with multiplier effects. With no further breakdown of the new projection from the government, we maintain our real GDP forecast at a 3% contraction in 2009 before rebounding to a positive growth of 2.5% in 2010.