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 ©The
Straits Times, Singapore (Used by permission)
by Leslie Lopez
Economists expect full brunt to be felt next year, with lower
GDP growth
AT THE numerous condominium projects around the Mont Kiara suburb of Kuala
Lumpur, construction workers plod round the clock to complete multi-storey
apartment blocks. Property developers in this popular neighbourhood are worried,
though, that sales are starting to slow.
'Units that were previously sold are now coming back onto the market,' says a
project manager of one unfinished condominium complex.
Shockwaves from the global financial meltdown are starting to pound on Malaysian
shores and signs of a wider slowdown are already emerging in key props of the
Malaysian economy, private economists say. That's spreading caution across the
board, from potential homeowners to buyers of new cars.
Last week, the central bank kept the benchmark interest rate unchanged at 3.5per
cent, but indicated it was ready to act swiftly if called upon.
'In the face of diminishing inflationary pressures, and in the event of
heightened downside risks to growth, the bank will take swift monetary policy
action to provide support to the economy,' Bank Negara Malaysia said in a
statement.
Bank Negara's concerns are rising as the country's robust manufacturing sector
is being hit by weaker export growth, while the softening in commodity prices
has crimped incomes and resulted in less spending among consumers. On Nov4, the
government is expected to make an announcement lowering its growth forecast for
next year from the 5.4per cent currently projected.
Economists say the full brunt of the expected slowing down in economic activity
is expected to be felt next year.
Ms Deyi Tan of Morgan Stanley expects gross domestic product (GDP) to grow by
3.3per cent next year, down sharply from the 5.6per cent expansion projected for
this year.
Australia-based Macquarie is more bearish. In a recent advisory to clients, the
securities firm said that it expects that the sharp drop in exports, coupled
with falling commodity prices, will see GDP growth slow to 1 per cent next year.
The Malaysian government insists that the country is well-placed to weather the
storm.
Datuk Seri Najib Razak, Malaysia's Deputy Prime Minister and newly-appointed
Finance Minister, said this week that the government will soon announce a slew
of measures, including more liberal investment rules, to attract foreign funds
and more government spending.
'The economic management is stable and our fundamentals are strong, so Malaysia
is not in a crisis,' he told reporters last week.
But not all Malaysians are as sanguine.
In a posting last week on his widely followed blog, former premier Mahathir
Mohamad said he had a 'sneaking feeling that all is not well'. Trade-dependent
Malaysia, he pointed out, relies heavily on the United States and European
markets, both of which are slowing.
Tun Dr Mahathir argued that the weakening exports to these market will hurt the
country's manufacturers and, in turn, put pressure on Malaysia's financial
system, which is exposed at home to the property sector and private lending in
the form of credit cards, which he estimated amounted to RM20billion
(S$8.5billion) owed to the banks
To be sure, Malaysia is entering the global recession in a much better position
compared with the regional crisis in 1998, when the economy went into a tailspin
as a result of excessive lending to the property sector and the stock market.
That is because private and public debt levels are far lower than they were
10years ago.
Economists say the country's foreign debt and public debt now stand at
manageable levels of 33per cent and 40per cent of GDP respectively.
But many economists note that public confidence, already shaky because of spikes
in inflation since early this year, is being hit by a slumping stock market and
fear that a slowing economy could result in job losses.
The benchmark composite index for the Malaysian stock exchange has fallen by
37per cent since the beginning of the year, and analysts say the government's
plan to buy stocks of sharply undervalued blue-chip companies will only lead to
more selling among foreign investors eager to exit the local bourse.
According to the financial weekly, The Edge, the country's top 30 tycoons have
suffered paper losses in access of RM75billion since January.
Mr Robert Kuok, the country's richest man, is said to have lost billions in his
corporate holdings in Hong Kong, Singapore and Malaysia as a result of the
collapse in financial markets, the weakening of the China property sector and
falling commodity prices.
Malaysia's bleak economic scenario is particularly worrisome because of the
country's unsettled politics, which, since the general election in early March,
has stumbled from crisis to crisis.
The chief bugbear is the unease sweeping through the country's ruling United
Malays National Organisation party that dominates the National Front coalition
government.
'The patronage style of management can work only in an expanding economy. When
the pie is shrinking, like it is now, ethnic tensions are never far behind,'
cautions a chief economist of a Western brokerage in Kuala Lumpur, who requested
that he not be identified.
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