Economic growth to slow down in 2009

PETALING JAYA: The economy is projected to grow between -1% to 1% this year in tandem with the slowdown in the global economy.

Bank Negara said in its 2008 annual report that the global economy is not expected to record any growth in 2009 with synchronised recession in a number of large economies.

It said global trade is expected to contract further this year and would be accompanied by a decline in global foreign direct investments.

“Market conditions in the international financial system will likely remain challenging and are expected to stabilise when the announced policy measures are effectively implemented to restore confidence in the financial sector,” it said.

Bank Negara said the expected loss of US-originated credit assets held by banks and other financial institutions could increase to US$2.2 trillion.

It said domestic demand, expected to grow moderately at 2.9%, would likely be the main support to the economy, anchored by public sector expenditure and private consumption.

Growth in private consumption expenditure is projected at 3.5% with consumer spending largely affected by weaker domestic labour conditions with higher retrenchments and less favourable employment prospects. The central bank said easing of monetary policy and various incentives to boost spending would provide support for household consumption.

Bank Negara has so far lowered its key policy rate, the overnight policy rate by 150 basis points since November to 2.0% while the statutory reserve requirement was cut by 300 basis points to 1.0%.

It added that public expenditure would be boosted by the first stimulus package of RM7 billion and the second package of RM60 billion.

On the supply side, sectors directly exposed to external demand would be the most affected this year.

It said output in the manufacturing sector would be significantly dragged by the contraction in the export-based industries, especially from the electrical and electronics segment, and weaker support from the domestic-oriented businesses.

“The manufacturing sector is projected to tumble by 8% this year,” Bank Negara said.

The services sector, meanwhile, would remain the anchor for the economy with a relatively moderate growth of 4.5% and contributing 2.5% to the overall economic growth.

The agricultural and mining sectors would contract by 2% and 0.4% respectively on lower production of palm oil, rubber and crude oil amidst lower prices.

It said the construction sector is expected to expand by 3% due to implementation of projects under the two economic stimulus packages.

Labour market conditions are anticipated to deteriorate, with the unemployment rate projected to increase to 4.5% in 2009.

Bank Negara said businesses affected by poor external demand would continue to implement cost-cutting measures, including temporary layoffs and retrenchments.

Although the public sector would increase employment, it would not fully offset the weak employment prospects in the private segment.

On the external front, the current account surplus is projected to moderate but remain sizeable at RM80 billion or 11.5% of gross national income in 2009 as export contraction would mainly be offset by import compression.

Bank Negara said the services account would record a deficit in 2009 due to the moderation in the travel account.

On the financial account, gross inflows of foreign direct investment are expected to moderate in 2009 as multinational companies postpone their investment plans until clearer signs of recovery are in sight.

Private investment is projected to decline by 17.7% this year.

The Star 25 March 2009