KUALA LUMPUR, May 27 - The Malaysian economy is worse than expected, contracting 6.2 per cent in the first quarter from a year ago, its worst fall since the fourth quarter of 1998 at the height of the Asian financial crisis.
It is the first time in eight years that the gross domestic product (GDP) has experienced a quarterly contraction which also translates to a drop of about 7 per cent from the last quarter of 2008.
Bank Negara also believes that it has continued into the second quarter and while the central bank is confident of improvements in the second half of 2009, governor Tan Sri Zeti Akhtar Aziz would not say if Malaysia would return to positive growth this year.
The government had expressed optimism that the export-driven economy will return to growth in the third quarter after slumping in the first half of 2009 as exports plunged.
Prime Minister Datuk Seri Najib Tun Razak had already cautioned the government will revise down its forecast for Malaysia to weaken by one per cent for most of 2009
“The second quarter will be very similar to the first. But there will be improvements in the second half,” Zeti said.
She explained that measures taken to strengthen the economy, which includes two government stimulus packages amounting to RM20 billion to be spent this year, may support positive growth in the last quarter and into 2010 if the situation externally is favourable.
Despite admitting that two quarters of negative growth would be considered a recession, Zeti refused to be drawn on whether Malaysia has slumped into one.
“We are now in very exceptional circumstances,” she said, explaining why making forecasts is difficult.
“We already anticipated a very slow growth as the financial crisis has become more prolonged than earlier expected and the deterioration in global economy was far greater than expected,” Zeti told reporters.
The hardest hit sector in the quarter was manufacturing which was down 17.6 per cent although construction, which has been a key element in the stimulus packages, managed to register a 0.6 per cent growth.
The services sector was also down 0.1 per cent after it had grown by 7.2 per cent for 2008 with the transport and storage sub-sector shrinking by 3.9 per cent, its first drop since 2003.
The country’s short-term growth depends on a global recovery boosting demand for its electronics, oil and commodities exports and also on Asian giant China’s consumption holding up.
Najib, who is also Finance Minister, has said Malaysia will have to change its economic model in order to generate future growth, adding he would concentrate on innovation and creativity particularly in services for Asia’s third-most export-dependent nation.
Najib will announce a new GDP forecast tomorrow.
Source: Malaysian Insider