Saturday, July 05, 2008

Unholy Trinity

Suhaimi Alias (Aseambankers) said,  after a sizzling 1Q08, Malaysia’s economic growth is expected to fizzle in the following three quarters.

The culprit is the “unholy trinity” of
(i) a slowing US/global economy;
(ii) prolonged domestic
political uncertainties and risks; and
(iii) rising inflationary pressures externally, which clouds the global and local economic
outlook further.

  • Consequently, real GDP growth this year is expected to come in lower at 5.3% vs. 6.3% recorded last year. Next year, economic growth is expected to plod along at 5.1% amid an expected gradual uptrend in quarterly growth. But this projection is contingent on several “no change” assumptions, namely status quo fuel-energy prices and benchmark interest rate.
  • Nevertheless, to counter any further downside and damage to the economy, we expect monetary and fiscal policies to be “supportive” and “expansionary” respectively. This will entail an unchanged Overnight Policy Rate (OPR) and the likelihood of people-oriented tax incentives and spending in Budget 2009, plus the 15% increase in the development expenditure allocation following the Mid-Term Review of the Ninth Malaysia Plan.
Meanwhile, we see the Ringgit to shaking off its seasonal summer blues since its de-pegging to end the year firmer at RM3.10 per USD.

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