Tuesday, May 26, 2009

Economists Positive On Economy After 1st Quarter

THE Malaysian economy probably bottomed out in the first quarter, with market expectations of an improvement leading to growth again in the last quarter.

Economists said they expected manufacturing output in the first quarter to fall nearly twice as much as in the fourth quarter of last year, although the services sector was likely to continue registering growth.According to a Business Times poll, the economy is expected to contract 3.47 per cent in the first quarter.

Gross domestic product (GDP) this year is forecast to contract 1.52 per cent before turning around and growing 3.2 per cent next year.

Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz, who will release the first quarter GDP data tomorrow, had said that the economy might show signs of improvement in the third quarter and subsequently register growth in the final quarter.

DBS Bank economist Irvin Seah has revised downward his forecast for first quarter GDP to -3.4 per cent from 0.5 per cent.

"We had earlier expected Malaysia's economic growth cycle to bottom out in the middle of the year, but higher frequency data such as exports and industrial production numbers are suggesting that the worst of Malaysia's quarterly GDP growth is probably now behind us, that is, in the first three months of the year," he said.

Seah said the main drag on the economy in the first quarter came from the external front, in line with the region's poor export performance.Malaysia 's exports collapsed in the first quarter, posting an average contraction of about 20 per cent year-on-year and pushing industrial output into reverse gear for a decline of about 16 per cent.

Seah expects the manufacturing sector to be the worst hit, with growth likely to fall by about 21 per cent in the first quarter, while the key services sector is expected to grow 5.3 per cent.

He is looking to an improvement in GDP growth numbers to -2.8 per cent, -1.7 per cent and 3.2 per cent in the next three quarters.

Citi economic analyst Leon Hiew said that while the January-March period was likely to see the first quarterly real GDP contraction since 2001, the latest March data suggested that Malaysia might already be at or past the bottom.

The drop in first quarter GDP will likely prompt a downgrade in the official forecast for the year, possibly to -1 to -3 per cent, he added.

Selena Ling, an economist with OCBC Bank, described the upcoming first quarter data as a "reality check" that the Malaysian economy was not immune to the global recession and would prompt the government to revise downward its growth forecast.

"Should the unfavourable combination of a domestic recession and easing commodity prices persist, the policy implications may be that the door is not ironclad for further interest rate cuts down the road," she said.

TA Research economist Patricia Oh also expects the economy to contract for the first three quarters before resuming growth in the fourth.

"The fiscal stimulus measures may be reflected by the end of the year, while private consumption is likely to rebound as consumer sentiment improves," she said.

- By Rupa Damodaran


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