Too early to revise Malaysia's economic outlook

PETALING JAYA: Although the global economy has been put on red alert again over the eurozone debt crisis, experts think it is still too early to revise their outlook for Malaysia's economy this year.

Source from (The Star Online): http://biz.thestar.com.my/news/story.asp?file=/2012/5/21/business/11320686&sec=business
Published: May 21, 2012

“We are on a wait-and-see mode, although we acknowledge the renewed concern over the eurozone debt crisis triggered by the political change in Greece,” CIMB Research chief economist Lee Heng Guie told StarBiz.

“We are now waiting for the first-quarter numbers for Malaysia's economy; and probably, we will reassess our outlook in the second half of the year,” Lee explained, adding that CIMB would, at this juncture, maintain its full-year projection of a 3.8% growth in gross domestic product (GDP) for the country in 2012.

The eurozone debt crisis has flared up again in recent weeks, following a political impasse in Greece, whereby parties opposed to the austerity terms of a bailout plan made strong gains and intensified the risk of the country exiting the euro.



Greece is expected to go to the ballot box once again on June 17. The outcome is expected to determine whether Greece should remain in the common currency.

Bank Negara governor Tan Sri Zeti Akhtar Aziz, in an interview with Bloomberg last week, warned of “unimaginable” consequences for Europe if Greece were to exit the euro. She said, in the worst-case scenario, there would be a contagion effect on other countries in the region that did not deserve those kind of consequences.

International Monetary Fund managing director Christine Lagarde had also warned of “extremely expensive” consequences in the event Greece leaves the eurozone.

World Bank president Robert Zoellick echoed the same sentiment, pointing out that Greece leaving eurozone could cause damaging ripple effects reminiscent of the effects of Lehman Brothers' collapse in 2008 that saw widespread panic across the global financial markets.

Despite the uncertainties, Zeti has affirmed that Bank Negara would maintain its 2012 GDP growth forecast at 4% to 5%, as it expected robust domestic demand to drive the country's economy.

“It is still too early to revise the outlook for Malaysia,” said MIDF Research chief economist Anthony Dass, concurring that domestic spending was still holding up pretty strongly.

In addition, he said China's economy was also expected to grow healthily, albeit at a slower pace from last year, and that would continue to support intra-regional trade growth.

Dass noted that the current scenario still present a compelling case for his team to maintain their full-year forecast of a 4.8% GDP growth for Malaysia this year.

Essentially, domestic demand would be the story for Malaysia's economy this year.

Malaysia is expected to announce its first-quarter GDP growth on Wednesday. A Bloomberg survey of 31 economists puts the median estimate for the country's GDP growth for the first quarter of 2012 at 4.6%.

Credit Suisse in its report said the strong first-quarter GDP would likely be followed by a soft reading in the second quarter of the year, due to weak demand from the Western world and possibly inventory correction.

“Domestic demand, however, should remain robust for a while longer, owing to the Government's pre-election pump-priming measures and the initial effects of the Economic Transformation Programme,” it explained, maintaining its full-year GDP forecast for Malaysia at 4.8%.