Capital outflows cloud Malaysian outlook
Some analysts doubt whether Malaysian companies have emerged from the global crisis as more important actors on the global FDI scene and believe falling investment figures reflect declining foreign investor sentiment towards Malaysia vis-a-vis its cheaper neighbors.
By Anil Netto, Asia Times Online
Although Malaysia appears to have weathered the worst of the global economic slowdown, indications of a recovery are tentative and clouded by a worrying trend of net foreign investment (FDI) outflows as foreign companies shy from new commitments and local ones seek opportunities abroad.
Malaysian gross domestic product (GDP) contracted 3.9% year on year in the second quarter, an improvement on the 6.2% collapse recorded in the first quarter. With exports representing as much as 120% of Malaysia's GDP, the slump in global demand and commodity prices has taken an especially heavy toll on Malaysian producers.
The improved performance was driven by two government economic stimulus packages – one launched in November 2008 and a larger package in March. The economy is now expected to contract by 3%-4% this year and in line with global up-trends is projected to expand between 3%-4% in 2010.
Economists say much will depend on the implementation of the fiscal packages during the second half of 2009 and the extent of the revival of local consumption and external demand, especially in the US, Japan and Europe. At the same time, concerns are rising about the fiscal deficit, which is on schedule to rise to 7.6% of GDP in 2009, up significantly from just 4.8% last year.
Central government debt as a percentage of GDP rose to 48% in June, leading to the country's first local currency debt downgrade since the 1997-98 Asian financial crisis. The banking system for now seems sound, buoyed by nascent signs that consumer and business sentiment is starting to pick up. International reserves are at a healthy nine months of retained imports.
While inflation has eased and exports have recently improved month-on-month, a sustained slump in external demand for electronics and electrical goods, a major component of Malaysia's total exports, raises questions about the recovery's sustainability. Exports of electrical and electronic products fell by 20% year-on-year in the first half of 2009, contributing to weakness in domestic investment and consumption.
The experience of individual electronic companies operating in Penang, a hub for electronics production, bears this out. "We are looking at a downturn in revenue of 30%," said a senior manager with a US multinational electronics corporation operating here. "Our last quarter was the rock bottom. Things should get better, but they will never be the same again. We have revised our assumptions for the future as we are now working on a lower-revenue model."
That lower-revenue model includes a reduced workforce.
