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Source: www.asiaecon.org |

MALAYSIA UNVEILS A SECOND STIMULUS PACKAGE AIMED AT AVERTING A POSSIBLE RECESSION


Malaysia has announced plans to unveil a second stimulus package on March 10th, as the country's slowing economy is impacted by the effects of the global financial crisis. The package is predicted to total over $8 billion, more than four times an earlier plan, reflecting the government's commitment  to prevent its export-driven economy to slip into a  recession this year.




Malaysia has announced plans to unveil a second stimulus package on March 10th, as the country’s slowing economy is impacted by the effects of the global financial crisis. The package is predicted to total over $8 billion, more than four times an earlier plan, reflecting the government’s commitment  to prevent its export-driven economy to slip into a  recession this year.

After experiencing an average annual growth of 5.4% in the last decade, Malaysia’s economy has been slowing at a dangerous pace. GDP grew at 0.1% rate in the last quarter 2008, a figure much lower than the government’s prediction of 1%, and marking a drastic decline from the 7.3% year-on-year growth experienced on the third quarter. In fact, it was the slowest growth pace in seven years, as the country’s export sector was severely hit by  falling global demand.  Total growth in 2008 reached 4.6%, much lower than the 6.3% growth achieved in 2007. Analysts expect the economy to contract by 1.19% this year.

“The spectre of a technical recession for Malaysia in the first half of 2009 is now a certainty while an outright recession for the full-year is inevitable,” said Azrul Azwar Ahmad Tajudin, an economist at Bank Islam Malaysia Bhd. in Kuala Lumpur.

Malaysia’s exports fell 27.8% year-on year in January, marking their lowest level since 2001, due to  plunging demand for the country’s electronic and commodities exports.  Manufacturing, also an important sector in Malaysia’s economy, grew by 0.1% in the last three months of 2008. Analysts predict the sector to continue to be affected up until September.

Moreover, the country currently faces rising unemployment as 400,000 people are expected to lose their jobs in 2009,  with 13,000 jobs lost last month alone.

The new package, estimated to be around $8 billion, will aim to create jobs and promote sustainable economic growth as it attempts to include all sectors of the economy.

 The package is expected to include credit guarantees for small businesses, personal income and corporate tax cuts, as well as cash rebates to the poor. At least  $ 3 billion is expected to be allocated towards development and operational spending. Moreover, the plan will include training programs for the unemployed, as the government hopes to ease concerns over the rising unemployment and retrenchment. 

Although the package will be significantly larger than the $2 billion stimulus package unveiled last November, analysts expect that a minimal of $9.4 billion will have to be spent in order to save  Malaysia’s economy from slipping into a recession this year.

However, the country’s widening deficit, along with falling government revenues from oil and palm oil taxes resulting from the falling commodity prices,  will significantly limit government spending this year. The government predicted  the budget deficit to reach 4.8% of GDP this year if the country maintained an economic growth of 3.5 % in 2009. Citibank has predicted that the new $ 8 million stimulus would  push the budget deficit to 9.6% of GDP,  creating the biggest gap since 1987, according to Bloomberg calculations.

Additionally,  the country’s uncertain political stability might pose risks to the “implementation and coordination of fiscal pump priming”, according to Deyi Tan, a Morgan Stanley economist. . Power struggles between the current ruling coalition and the strengthening oppositions might “distract efforts to boost the economy”, Deyi Tan added. 

Overall, the new stimulus package is expected to boost Malaysia’s slumping economy, but it still might not be enough to prevent the country from reaching a recession this year.

Source: www.AsiaEcon.org
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Source: www.asiaecon.org |


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