Malaysia: Year in review 2011
With many sectors of the economy having performed solidly over the past 12 months, Malaysia is hoping for more of the same in 2012. Indeed, foreign direct investment (FDI) is up, inflation well contained, and the financial sector steady. However, at least some impact from the European debt crisis is expected, with demand for exports widely predicted to ease in 2012.
Though final figures have yet to be issued, it is expected that the Malaysian economy will have expanded by more than five per cent in 2011. At the end of November, the Organisation for Economic and Cooperative Development (OECD) forecasted that this solid rate of growth would continue for at least the next five years, predicting Malaysia's GDP would expand by 5.3 per cent in each of the next few years and hit 5.6 per cent by 2016.
The OECD's forecast was somewhat more optimistic than the Asian Development Bank or the World Bank, which saw Malaysia's GDP rising by 4.7 per cent and 4.9 per cent, respectively, in 2012, though it was roughly in line with the International Monetary Fund's projection of 5.1 per cent. Whatever the ultimate figure, it would be well in excess of those of Malaysia's European and North American trading partners and in advance of most regional and global economies.
Along with GDP, Malaysia's balance of payments figures were also positive in 2011, with the current account surplus standing at US$23.8 billion for the nine months ending September 30, an 18 per cent increase on the US$20.2 billion posted in the same period last year, according to the Department of Statistics (DoS).
However, there were some concerns that Malaysia's export trade could suffer in the coming year, as major segments of the global economy flirted with recession. While exports rose by a healthy 15.8 per cent in October, this rate of increase was lower than that of the previous month, though still above the 9.10 per cent rise spread over the first 10 months of the year.
While overseas trade might raise a few concerns in the coming year, the same was unlikely to be the case with inflation. According to the latest figures released in November by the DoS, inflation was remaining fairly steady, with consumer prices rising by 3.4 per cent year-on-year in October.
Inflation could ease further in the new year, dipping to between 2.5 per cent and 2.8 per cent in 2012. This would be the result of a slowing of demand, and a slight deceleration of growth, with commodity prices moderating.
There was more reassuring news in a recent report from ratings agency Fitch, which said the Malaysian banking sector was also in good shape as the year came to a close and was well placed to ride out a renewed bout of economic retreat. The report, released in mid-December, said the outlook for Malaysian lenders was stable, though household debt, currently running at 76 per cent of 2010 GDP, remained high.
Local banks had put in place satisfactory risk management, the report said, adding that the impact of higher credit costs resulting from a general weakening of the global economy could largely be absorbed through banks' earnings, leaving limited risk of capital erosion.
Another sign of the stability and appeal of the Malaysian economy came in the form of inflows of FDI, which rose by 43 per cent to US$8.3 billion during the first nine months of the year in comparison to the same period in 2010. Indeed, the year-end total was likely to meet or exceed the US$10 billion forecasted by the government.
However, it was possible that Malaysia might struggle to match this total in 2012, with some indications that FDI might be drying up as eurozone economies moved ever closer to recession, a move that could reduce global investor sentiment.
Though there were still positive FDI inflows in the third quarter, the US$1.6 billion in the July to September period was some 50 per cent less than in the quarter before, reflecting uncertainty and growing caution among international investors. This unease could well continue into 2012.
One factor that might cause Malaysia to take its eye off the economic ball in 2012 was the upcoming general election, with the government of Prime Minister Najib Tun Razak widely expected to call the ballot early in the new year.
Many expected the election to be a tightly fought affair, with the opposition predicted to mount a creditable challenge to the ruling National Front coalition. A long campaign, followed by a less than decisive result, could disrupt market harmony and slow the pace of further economic reforms.
However, having successfully ridden out the global financial crisis of 2008 and 2009, Malaysia's economy appeared to be well placed to continue its progress into 2012 and beyond - http://www.theborneopost.com/