Malaysia economy outlook for year 2009

2009 will bound to be a very challenging year for Malaysia, although Malaysia’s economy is holding up pretty well this year. The first half of 2009 is expected to be a very tough period for Malaysia. The impact on Malaysia this year has somehow been cushioned but many are beginning to feel the economic downturn towards the year-end.

Unlike Hong Kong, people here do not seemed to be frantically queuing at the banks to withdraw their money. The authorities have been very proactive to address the economic slowdown. Bank Negara has stepped forward to guarantee deposits and the Government introduced the RM7bil stimulus package.

Malaysia has come a long way since the Asian financial crisis in 1997/98. We are different from 10 years ago - economy, corporates and even politically. We learned our lessons during the Asian crisis.

Malaysian banks are deposit-funded and lowly geared. The banks also had sufficient reserves to buffer any credit crunch shocks. Malaysia’s external reserves of US$99.7bil could support 8.1 months of retained imports and 3.7 times short-term external debt. Malaysia had the ability for further pump-priming to stimulate the economy with its current external reserves and account surplus.

It is important that consumers continue to spend. The cycle has to continue to stimulate the economy. Those who can afford it should continue spending as we are facing a serious slowdown next year. However, it is still too early to tell if consumer confidence has been restored.

Inflation would not be a concern in 2009 as soaring inflation is likely to ease next year. Corporate profit forecasts are likely to fall significantly further next year. We should not be too concerned with the 2009 earnings as they are expected to be poor, probably charting low single digit growth. The unemployment rate is expected to remain high as corporate could be downsizing.

On foreign funds inflow, a lot of countries would be competing for the same foreign fund inflows during these times so Malaysia should continue to be competitive and make sure that it had reasons for investors to come in.

Although things are not looking very rosy, there are still opportunities to be tapped during this time of market uncertainty. Investors have to do their homework and understand their risk tolerance level before moving into the market at this time.