Malaysia’s Economic Prospect in 2009 Looks Dark as Exports Continue to Decline

ESCAP’s annual survey analyses region’s challenges, proposes solutions

Bangkok (UN/ESCAP Information Services) – Bangkok (UN/ESCAP Information Services) – As a result of the global economic crisis, Malaysia’s gross domestic product (GDP) grew at 4.6 per cent in 2008 - down from 6.3 per cent in 2007. But according to the Social Survey of Asia and the Pacific 2009, record high prices of export commodities such as palm oil during the first half of the year eased the downfall.

In the fourth quarter of 2008, GDP growth rate fell abruptly to 0.1 per cent, reflecting both plunging commodity prices and the impact of the recession in the United States and other industrialized countries. The US dollar value of Malaysian exports contracted by 20.1 per cent in December 2008 compared to the same month in 2007, and by 33.8 per cent in February 2009, darkening the outlook for this year. As a result, the rate of GDP growth is forecast to drop to zero per cent in 2009.

This year’s edition of the flagship publication of the United Nations’ regional arm – the Economic and Social Commission for Asia and the Pacific (ESCAP) – is entitled "Addressing Triple Threats to Development”. It analyzes the three global crises which have converged to threaten development in the Asia-Pacific region: the economic crisis, fuel and food price volatility, and climate change. The Survey provides a regional perspective as well as country-specific analyses, outlining ways in which economies in the region can move forward in unison towards a more inclusive and sustainable development path.

Increases in the prices of oil and food had an impact on Malaysia’s inflation rate which increased to 8.4 per cent in the third quarter of 2008 compared to the same quarter in 2007. However, with sharply lower commodity prices towards the end of the year, inflation rate eased to 3.9 percent in February 2009.

To support the economy in the face of the deepening crisis, Malaysia’s central bank cut its policy rate decisively, from 3.5 per cent in November to 2 per cent in February 2009. In addition, in January 2009, the government announced a fiscal stimulus package of RM 7 billion (US $1.96 billion or 1 per cent of the GDP) which will fund: the promotion of strategic industries; small-scale projects such as village roads and school repairs; and education and skill training programmes.

In March 2009, the government unveiled a second and much larger stimulus package of RM 60 billion (US $16.2 billion or 8.6 per cent of the GDP) to be implemented over 2009 and 2010.

The Survey emphasizes that in regards to fiscal stimulus packages such as Malaysia’s, fiscal resources are limited and that today’s increases in budget deficits will eventually need to be cut. It is thus critical to be selective in the use of public funds. In particular, spending on policies that promote the long-term sustainability of energy and food markets as well as spending that addresses the deficiencies of current social protection systems are a valuable investment for the future while helping to support domestic demand in the short-term.

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The Economic and Social Survey of Asia and the Pacific 2009 is available online from 0500 GMT/1200 Bangkok on 26 March at: http://www.unescap.org/survey2009/index.asp

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