The Malaysian economy is expected to grow faster - Public Bank

The Malaysian economy is expected to respond quicker than other developing economies if the global economy starts to turn around in 2010 as projected by agencies like the International Monetary Fund (IMF).

With the lesson learned in Asian financial crisis in 1997/98, Malaysia has the capacity and strength to overcome the global slowdown by stimulating domestic economic activity, said Public Bank Bhd in its May 2009 economic review.

"With the inherent economic strengths and proactive policy interventions by the government and Bank Negara Malaysia to implement counter-cyclical policies to support domestic demand, the economic blow to Malaysia can be shallow and brief," it said.

Economic activity in Malaysia has slowed significantly since the second half of 2008 due to high trade and investment linkages with the United States, European Union and Japan.

However, looking forward, given Malaysia's strong economic fundamentals, the economy is expected to weather the current economic challenges and maintain a respectable level of economic performance, Public Bank said.

"While it is inevitable that the Malaysian economy would undergo some soft patches in the short term, it should continue to remain stable, healthy and far from the financial and economic crisis that will continue to linger in the developed economies," it said.

"However, because of the high economic interdependency between Malaysia and the developed economies, there will be limitations to which Malaysia and also other emerging economies can ride out from the global economic slowdown, if the present recession in the west deepen and prolong," it added.

Due to the deteriorated global conditions and falling industrial activity and exports in Malaysia since the second half of last year, economists have projected the Malaysian economy to register either a low growth or enter a recession this year.

Bank Negara's expectation of gross domestic product growth for 2009 is between -1 percent to one percent, and the IMF expects the Malaysian economy to contract by 3.5 percent in 2009 due to weaker external demand, the bank said.

"The failure of the developed countries to find a comprehensive resolution to the financial and credit market crisis adds to the scepticism," it said.

In the current challenging economic environment, the prerequisite to successful macroeconomic management is strong health of the banking system, according to Public Bank.

"In Malaysia, the banking system is one of strength and resilience. The banking system has a strong capital base with its risk-weighted capital ratio exceeding 13 percent and a net non-performing ratio of only 2.2 percent in March this year," it said.

Coupled with ample liquidity, the strength and well functioning of the banking system is supported by low leverage position, central bank's readiness to provide liquidity to the banks and a blanket deposit guarantee on all ringgit and foreign currency deposits in the banking system by the government, the bank said.

The government has also further loosen its fiscal stance with the implementation of the first stimulus package in November 2008 and the second stimulus package in March 2009, it said.

Malaysia entered into the current period of slowing economic growth from a position of strength with strengthened and comfortable external position, with large current account surplus, high internations reserves and low external debt.

"Even under a most stressful condition, the external position of the country is expected to remain comfortable," it said.

"These strengths provide the government with the capacity and flexibility to further stimulate domestic activity to fill up the slack left by the export sector without causing unnecessary strains on the economy," it added.

Source: Bernama 7 May 2009