The Star Online > Business
Thursday November 6, 2008
Remote chance Malaysia will enter recession
KUALA LUMPUR: Like many other nations, Malaysia is dependent on exports to the US for economic growth but the risk of the country going into a recession is quite remote, said Malaysian Rating Corp Bhd (MARC) chief economist Nor Zahidi Alias.
“Malaysia’s direct dependency on the US as a major export destination has steadily declined in recent years,” he said.
However, he noted that Malaysia’s exposure to the US had actually increased, taking into account “indirect exports”, which was why “growth in China is paramount.”
“Whatever we export to China is being repackaged and sent to the US. If you consider all these factors, our exposure to the US has increased,” Nor Zahidi said at the CEO breakfast talk on Current Global Economic Challenges yesterday.
Including indirect exports, Malaysia’s exports to the US constituted 32% of its total exports in 2006, up from 25% in 2000, he added.
Nor Zahidi forecast Malaysia’s gross domestic product growth to moderate to 3.5% next year “based on the US economy contracting by a maximum 1.5% in 2009”.
“If the US economy contracts by more than 2% next year, the forecast would have to be revised,” he said.
The economist said Malaysia’s economic growth next year would be constrained by weakness in private investments as risk aversion heightened among investors.
Both exports and private investment were expected to bear the brunt of the global slowdown, he said.
Meanwhile, MARC chief executive officer Mohd Razlan Mohamed said slower economic activities would have a bearing on corporate bond issuance in 2009.
He estimated corporate bond issuance in 2009 to be in the range of RM25bil to RM30bil.
“The number of foreign entities that sought to issue in the ringgit bond market to capitalise on the lower financing cost, particularly between the second half of last year and the first half of this year, has diminished in the wake of significant spikes in corporate yields.
“The 3-year AAA yield that averaged 4.08% in mid-2007 has moved up to 4.70% by the third quarter of this year,” Razlan noted.
He said the gap between what investors were willing to pay and what they were seeking had created an incompatible situation for bond issuance.
Thursday, November 6, 2008
Tuesday, November 4, 2008
UBS AG Sees Malaysia Achieving Zero Growth Next Year
Tuesday November 4, 2008
UBS sees zero growth for Malaysia
KUALA LUMPUR: UBS Ltd, a subsidiary of Zurich-based UBS AG, sees Malaysia achieving zero growth next year in view of weakening demand from G7 countries.
Managing director for global economics Paul Donovan said exports growth would be negative for Malaysia.
“Asian governments, including Malaysia, are expected to continue applying fiscal and monetary stimuli to offset slower growth,” he told a media briefing yesterday.
He expects Malaysia to cut the overnight policy rate by 50 basis points to 3% as early as this month in line with monetary measures being taken by governments globally.
Donovan said unemployment in the country would rise gradually to 4% by 2010 in view of the slowdown in exports.
“Although Asia will recover faster than Europe, there’ll not be any above-trend growth until early 2011 while export-driven economies will have to wait for the rest of the world to recover before exports grow again,” he said.
He added that global growth would be slow for the next 18 to 24 months.
“This sort of weak growth normally follows a banking crisis because banks are reluctant to lend due to weak balance sheets while corporate debt, especially in Europe, have risen by 40% in the last four years,” Donovan said.
He said weaker borrowing and consumer spending would continue until the debt-to-income ratio went back to 2002 levels.
“It’ll take time to return to that level and will need a change in policy with lots of interest rate cuts and governments may need to encourage banks to pass on the lower rates to consumers in the form of lower commercial lending rates.”
Import orders by the US would be turning negative in the next few months while car sales there had slowed down, Donovan said, adding: “There will be no way to limit the impact in Asia while China will not be able to replace the lost car sales in the US.”
Among the Organisation for Economic Cooperation and Development (OECD) countries, he said, there would be negative growth next year except for Japan, which would see a slight growth. “Overall, the global economy is experiencing its weakest growth in 25 years,” he said.
The poor performance of most of Asian currencies was due to investors reassessing the fundamentals of growth in the region because the idea that Asia and Europe would decouple from the US economy did not hold true anymore, he said.
“The ban on short selling in the US and Britain had unintended consequences on these currencies because hedge funds had to sell some of their investments to cover short positions in Asia as well as Latin America.”
On a more positive note, Donovan said Malaysia’s inflation rate was set to come down rapidly next year to below 1% due to the lower energy and food prices.
“Semi-skilled labour costs, which are the main driver of food prices, are likely to be relatively stagnant, which means food prices will be lower,” Donovan said.
Statistics show that 80% of food price inflation in OECD countries was driven by semi-skilled labour costs, while in Asia, it was 40% to 60%.
He said crude oil price for next year would average US$60 to US$65 a barrel from US$120 this year.
UBS sees zero growth for Malaysia
KUALA LUMPUR: UBS Ltd, a subsidiary of Zurich-based UBS AG, sees Malaysia achieving zero growth next year in view of weakening demand from G7 countries.
Managing director for global economics Paul Donovan said exports growth would be negative for Malaysia.
“Asian governments, including Malaysia, are expected to continue applying fiscal and monetary stimuli to offset slower growth,” he told a media briefing yesterday.
He expects Malaysia to cut the overnight policy rate by 50 basis points to 3% as early as this month in line with monetary measures being taken by governments globally.
Donovan said unemployment in the country would rise gradually to 4% by 2010 in view of the slowdown in exports.
“Although Asia will recover faster than Europe, there’ll not be any above-trend growth until early 2011 while export-driven economies will have to wait for the rest of the world to recover before exports grow again,” he said.
He added that global growth would be slow for the next 18 to 24 months.
“This sort of weak growth normally follows a banking crisis because banks are reluctant to lend due to weak balance sheets while corporate debt, especially in Europe, have risen by 40% in the last four years,” Donovan said.
He said weaker borrowing and consumer spending would continue until the debt-to-income ratio went back to 2002 levels.
“It’ll take time to return to that level and will need a change in policy with lots of interest rate cuts and governments may need to encourage banks to pass on the lower rates to consumers in the form of lower commercial lending rates.”
Import orders by the US would be turning negative in the next few months while car sales there had slowed down, Donovan said, adding: “There will be no way to limit the impact in Asia while China will not be able to replace the lost car sales in the US.”
Among the Organisation for Economic Cooperation and Development (OECD) countries, he said, there would be negative growth next year except for Japan, which would see a slight growth. “Overall, the global economy is experiencing its weakest growth in 25 years,” he said.
The poor performance of most of Asian currencies was due to investors reassessing the fundamentals of growth in the region because the idea that Asia and Europe would decouple from the US economy did not hold true anymore, he said.
“The ban on short selling in the US and Britain had unintended consequences on these currencies because hedge funds had to sell some of their investments to cover short positions in Asia as well as Latin America.”
On a more positive note, Donovan said Malaysia’s inflation rate was set to come down rapidly next year to below 1% due to the lower energy and food prices.
“Semi-skilled labour costs, which are the main driver of food prices, are likely to be relatively stagnant, which means food prices will be lower,” Donovan said.
Statistics show that 80% of food price inflation in OECD countries was driven by semi-skilled labour costs, while in Asia, it was 40% to 60%.
He said crude oil price for next year would average US$60 to US$65 a barrel from US$120 this year.
Monday, November 3, 2008
Downward Pressure On Malaysian Exports Expected
Monday November 3, 2008
Downward pressure on Malaysian exports expected
By EILEEN HEE
Growth likely to be 3% next year
MORE downward pressure on Malaysia’s export performance is expected due to the current weak global economy and slump in commodity prices, say economists.
Aseambankers Research chief economist Suhaimi Ilias said full-year gross export growth was expected to slow sharply to 3% next year from 10.5% this year.
The plunge in commodity prices, especially the 60% decline in oil and crude palm oil (CPO) prices, since their peak this year, would have a severe impact on Malaysian exports.
Light crude oil was trading at US$63.58 on Friday, down 56.7% from its peak of US$147 per barrel in July while CPO closed at RM1,515, down 66.2% from its March peak of RM4,486 per tonne.
About 75% to 80% of the (16%) export growth in January to August this year came from exports of pure commodities (petroleum, CPO, liquefied natural gas and resource-based products (refined petroleum products, wood and rubber products, chemicals, steel).
He said the impact was already being seen, especially in relation to the fall in commodity prices, as gross exports slowed to 10.6% year-on-year growth in August from the average of 22% year-on-year growth per month between April and July.
He expected import growth to be dragged as well. “With imports of intermediate goods - primarily inputs for the export-based manufacturing sector - accounting for 70%-75% of total imports, we can expect overall import growth to be affected. Moreover, the prospect of slower investment activities will also hit imports of capital goods,” he said.
Suhaimi said since exports growth was declining due to the slowdown in major economies like the US, Europe and Japan - which account for one-third of Malaysia’s exports - the Government should focus on shoring up domestic demand.
“We expect the upcoming Economic Package to address this issue with measures to boost consumer spending and the enlarged public sector spending (Federal Government and GLCs), support key growth sectors/areas like tourism, as well as raising the competitiveness and attractiveness of Malaysia as a foreign direct investment location,” he said.
Meanwhile, MARC chief economist Nor Zahidi Alias said although Malaysia had, to some extent, managed to diversify its exports to ASEAN markets, the anticipated weakness of these economies would eventually affect demand for Malaysia’s products.
Not only was the US economy likely to contract this year, the other major economies including the EU and Japan were on the brink of a recession, he said.
According to estimates by the International Monetery Fund, Malaysia’s total trade exposure, including indirect exposure to the US, measured as exports to the US as a share of Malaysia’s GDP was 31.7% in 2006, as against the direct exposure of 22.7%. For the EU market, total exposure was 25.4% as against 13.8% for direct exports share.
“This will definitely affect demand for Asian products, including Malaysia.
“It is also important to note that in the past one year or so, Malaysia’s export performance had been supported by strong commodity prices, namely from oil and CPO-related products,” he said.
He said the value of these exports might decline especially when commodity prices continue to remain soft.
Meanwhile, imports are expected to shrink as producers tend to be extra cautious about the outlook of external sector in the near-term.
“However, the good news was the falling ringgit against the USD may act as a buffer against a very sharp decline in export performance.
“With the USD expected to continue its uptrend following a continuous flight for safety, the ringgit may not experience a sharp rebound in the near-term. The weakness in ringgit will be a positive factor for exporters,” he said.
Rating Agency Malaysia economist Kristina Fong said that in the first seven months of the year, Malaysia’s gross exports expanded by 17% while imports grew by 9.3% to boost the country’s trade balance by 59% to RM82bil.
“Assuming the pace of growth drops by a quarter for the remaining months due to the more pronounced global economic slowdown, Malaysia’s gross exports for 2008 is projected to expand at a still healthy 11.2% and imports at 8.0%, yielding a sizeable trade balance of more than RM120bil,” he said.
For 2009, Fong said the anticipated downturn in several of the advanced economies, particularly the US, UK and some EU countries, would dampen growth of Malaysian exports and imports significantly, which was forecast at 2-3%.
“Akin to the export slowdown in 2007, GDP growth is expected to sustain at 6.3% due to strong domestic demand, particularly private consumption and investment,” he said.
Downward pressure on Malaysian exports expected
By EILEEN HEE
Growth likely to be 3% next year
MORE downward pressure on Malaysia’s export performance is expected due to the current weak global economy and slump in commodity prices, say economists.
Aseambankers Research chief economist Suhaimi Ilias said full-year gross export growth was expected to slow sharply to 3% next year from 10.5% this year.
The plunge in commodity prices, especially the 60% decline in oil and crude palm oil (CPO) prices, since their peak this year, would have a severe impact on Malaysian exports.
Light crude oil was trading at US$63.58 on Friday, down 56.7% from its peak of US$147 per barrel in July while CPO closed at RM1,515, down 66.2% from its March peak of RM4,486 per tonne.
About 75% to 80% of the (16%) export growth in January to August this year came from exports of pure commodities (petroleum, CPO, liquefied natural gas and resource-based products (refined petroleum products, wood and rubber products, chemicals, steel).
He said the impact was already being seen, especially in relation to the fall in commodity prices, as gross exports slowed to 10.6% year-on-year growth in August from the average of 22% year-on-year growth per month between April and July.
He expected import growth to be dragged as well. “With imports of intermediate goods - primarily inputs for the export-based manufacturing sector - accounting for 70%-75% of total imports, we can expect overall import growth to be affected. Moreover, the prospect of slower investment activities will also hit imports of capital goods,” he said.
Suhaimi said since exports growth was declining due to the slowdown in major economies like the US, Europe and Japan - which account for one-third of Malaysia’s exports - the Government should focus on shoring up domestic demand.
“We expect the upcoming Economic Package to address this issue with measures to boost consumer spending and the enlarged public sector spending (Federal Government and GLCs), support key growth sectors/areas like tourism, as well as raising the competitiveness and attractiveness of Malaysia as a foreign direct investment location,” he said.
Meanwhile, MARC chief economist Nor Zahidi Alias said although Malaysia had, to some extent, managed to diversify its exports to ASEAN markets, the anticipated weakness of these economies would eventually affect demand for Malaysia’s products.
Not only was the US economy likely to contract this year, the other major economies including the EU and Japan were on the brink of a recession, he said.
According to estimates by the International Monetery Fund, Malaysia’s total trade exposure, including indirect exposure to the US, measured as exports to the US as a share of Malaysia’s GDP was 31.7% in 2006, as against the direct exposure of 22.7%. For the EU market, total exposure was 25.4% as against 13.8% for direct exports share.
“This will definitely affect demand for Asian products, including Malaysia.
“It is also important to note that in the past one year or so, Malaysia’s export performance had been supported by strong commodity prices, namely from oil and CPO-related products,” he said.
He said the value of these exports might decline especially when commodity prices continue to remain soft.
Meanwhile, imports are expected to shrink as producers tend to be extra cautious about the outlook of external sector in the near-term.
“However, the good news was the falling ringgit against the USD may act as a buffer against a very sharp decline in export performance.
“With the USD expected to continue its uptrend following a continuous flight for safety, the ringgit may not experience a sharp rebound in the near-term. The weakness in ringgit will be a positive factor for exporters,” he said.
Rating Agency Malaysia economist Kristina Fong said that in the first seven months of the year, Malaysia’s gross exports expanded by 17% while imports grew by 9.3% to boost the country’s trade balance by 59% to RM82bil.
“Assuming the pace of growth drops by a quarter for the remaining months due to the more pronounced global economic slowdown, Malaysia’s gross exports for 2008 is projected to expand at a still healthy 11.2% and imports at 8.0%, yielding a sizeable trade balance of more than RM120bil,” he said.
For 2009, Fong said the anticipated downturn in several of the advanced economies, particularly the US, UK and some EU countries, would dampen growth of Malaysian exports and imports significantly, which was forecast at 2-3%.
“Akin to the export slowdown in 2007, GDP growth is expected to sustain at 6.3% due to strong domestic demand, particularly private consumption and investment,” he said.
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