Thursday, January 15, 2009

More stimulus and rate cuts expected

The latest forecast offered by MIER, as reported by Bloomberg, is that Malaysia's economic growth for 2009 will be in the region of 1.3% GDP growth. This is lower than the 3.4% GDP growth that MIER itself forecasted in December 2008.

This is one of the hazards of economic forecasting since it deals with historical numbers from previous quarters. Still, we cannot ignore the downward trend in projections. 

To digress a little and, yet, on point, this morning I interviewed a job applicant who is in her 40s who had been laid off her previous job. She told me that her previous employer, a Malaysian SME involved in the importation of certain goods, is in the process of shutting down. I established from the chat that the impending closure of that business was due to 2 things. First, sales orders fell precipitously. Second, there was a competing product that was gaining market share. So, the impending closure has something to do with the contracting economy but, the decision was also affected by competition factors.

More stimulus may be needed
By MIER's reckoning, a second stimulus package, equal to the RM7 billion first package, is likely to be required.   

Borrowing costs to be cut by another 50 basis points (0.5%)
Consistent with what this blog has called for previously, MIER is expecting Bank Negara to cut bank borrowing costs (the so-called overnight policy rates) by 50 basis points. This is usually translated into lower lending rates at the retail lending level, which should help the SMEs and other borrowers.

More deficits in fiscal budget 
Unfortunately, the government's stimulus package(s) is required at a time when Malaysia's biggest income source, crude oil, is declining in value. This has led MIER to revise the 4.8% of GDP deficit in 2009 to a higher deficit estimate of 5.5% of GDP.

A take on Bursa Malaysia
For all it's worth, those who have some exposure to shares in Bursa Malaysia, may be interested in the ominous view held by Deutsche Bank's latest report, that the Malaysian stock market has yet to price in a worsening economic climate including the risk of a technical recession. As noted by the Edge Daily, quoting a research house, a technical recession is a situation when there are two consecutive quarters of negative GDP growth.


walla said...

de minimis said...

bro walla

Once again, the rabbits you pull out of the hat is exactly spot on the content of the media reports. Many thanks.