Malaysia Economic Outlook 2010 - Malaysia Economy Still Boosted by Stimulus

February 26, 2010

By Fred Victor

The Malaysian economy is still expected to benefit from ongoing global measures to stabilize its current economic situations through effective fiscal measures and loose monetary policy as a soft growth of Gross Domestic Product (GDP) is projected to register between 2%-3% in 2010. The Asian Development Bank (ADB) expects Malaysia’s economy to return to growth in 2010¹. According to Alianz Group Chief Economist – Michael Heise, Malaysia’s economy is expected to see a solid growth of 3.5% in 2010².

Growth this year will be driven by domestic demand, particularly the private expenditure which driven by expected recovery in world trade (refer to Comparison of Quarterly GDP Rate 2008-2009³). For 2010 as a whole, nevertheless, Malaysia’s GDP is expected to register at least in soft positive territory.

Accordingly, the Southeast Asia’s third-largest economy has been hit robustly by the downturn in world trade, probably the worst economy since the 1930s, ensued from the financial crisis in U.S. and other developed countries as booming exports had been the major driver of Malaysian economic growth in recent years.

For 2010, we are forecasting a fairly soft GDP growth of 3% for the emerging Asian countries such as China, Hong Kong, Indonesia, Thailand, South Korea and Singapore. The services sector will be the pillar of strength amidst a glum manufacturing sector⁴.

Apart from the projected moderate improvement in the G3 economies of Europe, Japan and U.S., the key reasons for a soft recovery in Malaysia due to its relatively strong fiscal and monetary stimulus policies, large currency reserves and current account surpluses. More importantly, Malaysia’s Consumer Price Index (CPI) rose in December 2009 for the first time in seven months as food and housing costs re-climbed coupled with Malaysia’s historic auto sales rose 33% (50,622 units, Jan 10; 38,107 units, Jan ‘09) year-on-year in January 2010⁵ which underpinned Malaysia’s economic recovery.

¹Business Times, February 26, 2010

²Bernama, May 29, 2009

³Department of Statistics Malaysia, December 2009 

⁴Business Week, January 25, 2010

⁵Daily Express, February 24, 2010