January 15, 2009 18:32 PM

Malaysia Unlikely To Plunge Into Recession

From Ahmad Farizal Hajat

BANGKOK, Jan 15 (Bernama) -- Malaysia is unlikely to plunge into recession due to its diversified economy and the buoyant tourism sector, but it cannot rule out such a scenario if the world economy gets worse, the United Nations Economic and Social Commisison for Asia and the Pacific (ESCAP) said.

Its Senior Advisor, Raj Kumar said that compared to its neighbours, Malaysia was in better position and able to weather the financial turmoil in the United States - its largest export market, but should take steps to spur growth internally and improve intra-region trade.

"Reasonably, recession is unlikely in Malaysia unless the economy gets worse. Furthermore, the commodity prices would not rise very quickly," he said at the launching of the UN annual economic report - World Economic Situation and Prospects 2009 here on Thursday.

Kumar, however, warned Malaysia that it should watch closely its immediate neighbour and important trading partner Singapore, whose economy has contracted by two percent while world economy has not bottom up yet.

"As a trading economy, Singapore economy is exposed to the world but it could stand the pressure due to its large reserve, good contigency plan. As Malaysia is closely linked with Singapore, any further fall there will affect them...we have to see how Singapore fares in the next six months," the Malaysian-born official added.

He said while some countries have announced stimulus packages to face the global economy turmoil, not many have taken measures to create employment that was crucial to sustain consumption and get the economy going.

"Countries like Thailand use the stimulus package to shield their economy and there was little to create new jobs while Malaysia has very limited in this aspect, just training only. They have sort of subsidies to help the poor, like free bus, lower water and electricity tariffs but this is all short term," he said.

Malaysia has come out with a RM7 billion stimulus package to meet the challenges ahead while Thailand announced a 115 billion baht supplementary spending budget to overcome the sluggish economy.

Instead, Raj said regional countries should look at China which was using its large reserves to invest in its domestic companies, as well as in Africa and Latin America.

Raj also said Asian countries were unlikely to see severe economic crisis similar to the 1997 financial crisis that started from this region as they have undergone financial reforms and have large reserves at their disposal.

Unescap's Chief of Macroeconomic Policy and Analysis Section, Tiziana Bonapace said the deceleration of economic activity in East Asia would continue in 2009, and its GDP was expected to drop to six percent, down from 6.9 percent in 2008 and nine in 2007.

She said the baseline scenario for the growth outlook assumes that there would be economic recovery in the developed economies in the second half of 2009, and if this does not occur, GDP in the region would slow to as low as 3.7 percent in 2009.

According to the report, China remains the region's locomotive and its GDP growth dropped from 11.9 per cent in 2007 to a lower, albeit still strong 9.1 percent in 2008.

Cambodia, the Philippines and Singapore, with their heavy reliance on manufacturing exports to industrialised countries, have been affected the most by declining exports resulting in their GDP growth dropping by about three percentage points in 2008 compared with 2007.

In contrast, record high prices of export commodities, including rice, palm oil and energy, in the first half of 2008 allowed countries such as Thailand, Indonesia and, to a lesser extent, Malaysia, to sustain growth rates in 2008 at levels similar to those in 2007.

-- BERNAMA

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