MIER: Malaysia will not be insulated from dismal global outlook

GDP may grow below 3% next year

KUALA LUMPUR: The Malaysian Institute of Economic Research (MIER) may be revising its forecast of 3.4% gross domestic product (GDP) growth for next year to less than 3%.

According to executive director Datuk Dr Mohamed Ariff Abdul Kareem, Malaysia will not be insulated from the dismal global outlook and some of the assumptions behind its earlier projection were now being challenged, especially with regards to the worse-than-expected growth rates of the US, Europe and Japan.

“The picture looks more severe than it appeared at first,” he told reporters after the MIER National Economic Outlook conference 2009-2010 yesterday.

He said chances were the forecast would be downgraded but it would depend on the information from upcoming MIER surveys.

“We need to take another look at the numbers and we need a basis to do that. We think the fourth quarter survey we are conducting this month will provide us this basis,” he said.

By the looks of it, next year’s GDP growth may be revised a little downwards but Malaysia would still be able to weather the storm because there were a lot of mitigating factors, he added.

Asked whether the overnight policy rate (OPR) should be further revised, he said: “I think the 25 basis point reduction is not sufficient. But to reduce it by 50 basis points at one go may have adverse implications for the ringgit. In that sense, Bank Negara was wise enough to do it in a gradual way.”

He said the OPR could be revised to a little lower to 3% because the situation now was far more serious than in 2005 when interest rate was only 3%.

“With inflation coming down considerably, we think there is some space for lower interest rates,” he said, adding that he expected OPR to be slashed by another 25 basis points at the next monetary policy committee meeting.

While he expected the banking sector margins to be affected, he said banks were still well capitalised to ride this out.

‘Their profit performance has been fairly good. Banks in Malaysia are in a far better position compared with banks in the region,” he said.

He said the RM7bil stimulus package unveiled last month as a measure to stimulate domestic demand was not quite sufficient.

“The RM7bil stimulus package is nothing. It is very small. The situation is far more tense and we are worried about job losses. The Government should do everything it can to address job losses as it has a cumulative effect on the economy,” he said.

He expected the manufacturing sector, especially those involved in assembly activities, to be affected by job losses.

The construction sector was also expected to taper off, he said.

“I think we will feel the heat of this crisis by the middle of next year. I don’t see any traction until mid-2010 or 2011. All indications are that the US is not going to recover in two years,” he said.

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