The Week Ahead In Asia

Malaysia: Economy still strong

Malaysia's strong exports, high-priced commodities and vibrant manufacturing sector would help withstand a global recession from a US economy slowdown, says the second finance minister

SECOND Finance Minister Tan Sri Nor Mohamed Yakcop yesterday ruled out the possibility that Malaysia would slip into a recession this year or the next, citing the country's many economic pillars.

He said Malaysia's strong exports, high-priced commodities and vibrant manufacturing sector would help withstand what some economists are calling a "global recession" triggered by a slowdown in the US economy.

"Diversification is the strong point of our economy," Nor Mohamed said during an interview with TV3's The Exchange in Kuala Lumpur yesterday.

The government's official gross domestic product (GDP) growth forecast for 2008 is five to six per cent.

He said the government will announce its new growth targets when the Budget 2009 is tabled on August 29.

"At this point in time I can say that growth will be positive and significantly so," Nor Mohamed said.

Inflation, he said, is not expected to surpass the six per cent mark for the whole year. However, it will remain high at six to seven per cent or more for July and August, before tapering off.

"It's very important to remember that what we have is a one-off inflation, brought on by costs going up and not a demand pull ... which means that for next year, for example, the numbers will not be repeated," Nor Mohamed said.

He noted that global oil prices have come down to a more realistic level of US$100-US$120 (RM326-RM391) per barrel and commodity prices are also stabilising, and he expects this trend to continue.

"Based on fundamentals, and this is inclusive of the demand from India and China with their growing middle class population, the price of oil should be between US$100 and US$120 per barrel," Nor Mohamed said.

On Budget 2009, he said one of the key considerations will be food security, which not only refers to affordability but also accessibility.

"We need to make sure that we grow enough to have food for our own use," Nor Mohamed said, adding that this is a major concern of many countries in the world.

He said there is also a need to extend the social safety net, in view of the more difficult circumstances, to make sure higher prices do not unduly burden the lower income group.

On funding for the budget, he said the government does not plan to issue any overseas bonds.

Nor Mohamed admitted that it would be difficult to achieve the target of reducing the country's budget deficit to 3.1 per cent this year.

"That target appears to be very challenging at this point in time, given the increase in oil prices internationally, our own need to make sure there is an adequate safety net, and the rising cost of projects because of the higher cost of building materials," he said.

By Presenna Nambiar