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MIER: Malaysia may face bigger challenges in 2010

MIER: Malaysia may face bigger challenges in 2010

KUALA LUMPUR: Come 2010, the Malaysian economy is expected to face tougher and more challenging times following concerns that the United States may be heading for a double-dip recession.

Malaysian Institute of Economic Research (MIER) executive director Datuk Dr Mohamed Ariff Abdul Kareem said all available evidence clearly showed that Malaysia was out of recession.

The country would register positive growth in the fourth quarter of this year, and this would probably continue into 2010, he told Bernama in an interview.

“Initially, we thought it’ll be something like minus three to minus four per cent growth for this year.

“Now, looking at the numbers of the third quarter and the subsequent monthly data, we think the growth for this year will be in the region of minus two to minus three per cent,” he said.

For 2010, he anticipated the growth to be closer to four per cent.

However, he said, 2010 would be a challenging year. Although the global economy was moving out of the recession, it was not completely out of the woods, he added.

“There are worries that the growth momentum that we are seeing now – not only in Malaysia but everywhere else – is somewhat fragile because the growth that we are seeing in the United States and Europe and some other countries are very much driven by fiscal stimulus packages,” Mohamed Ariff said.

He said that to keep the momentum going, these countries would probably need another dosage of fiscal stimulus.

“But the question is, can these countries afford to have another round of fiscal stimulus?”

“Many also think that that may not work in the first place. There are concerns of that sort that suggest there may be double dip in the United States in the first half of next year,” he said.

If that were to happen, he said, obviously there would be a lot of knock-on effects on other countries which United States has a good trade and economic connection.

Other concern, he said, was the possibility of asset bubbles especially in China and many countries in East Asia and rising inflation.

“These asset bubbles may really cause problem if they were to breed sometime this year,” he said.

He said that another worrisome factor was that all these countries had been printing money this year to finance part of their deficits.

“These extra money printed actually have not translated into higher prices because of repressed demand conditions. But once economy starts to recover, demand will begin to recover, there is a strong possibility of inflation reemerging.

“If inflation were to rise, countries like Australia and Europe which are very sensitive to inflation numbers, may jack up interest rates. And if they jack up interest rates, then I think it will scuttle the growth process,” he said.

Mohamed Ariff said Malaysia would probably not raise interest rates even if Europe would do so and Australia had already done it.

“The recovery that we see in Malaysia is very fragile. You are talking about four per cent growth only and this is way below Malaysia’s potential growth of 5.5 per cent

“So, the economy cannot afford to have a high interest rate regime at this point in time,” he said. Malaysia had to keep its interest rates relatively low to stimulate both consumption and investment, he added.

He said the country’s growth might reach its peak early and decelerate thereafter should the United States run into a double dip contraction in the first half of 2010, in which case Malaysia would have to put in some kind of stimulus package.

“There are already indications of the volatility,” he said, adding that Japan had shown some kind of deceleration after a positive growth in the third quarter.

Mohamed Ariff said Malaysia might need another RM8 billion to support what it had done before but introducing another stimulus would increase the government’s budget deficit since revenue was falling.

“In a way, this is a difficult time. I don’t think now is a cause for celebration. We are out of recession but we are going to be stuck in a slow, sluggish growth for at least two more years.

“We don’t really actually see the full growth trajectory until the year 2012. Until then, we will have to struggle or wrestle with this sluggish growth,” he said. – Bernama

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