Remote Chance Malaysia Will Enter Into Recession

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.