Malaysia is preparing to announce the onset of its first recession for 11 years amid growing concern about the depth of the slowdown and the likely timing of a recovery.
The end of the country’s long period of expansion was heralded by senior ministers and central bank officials in interviews before this week’s release of figures for gross domestic product for the March quarter.
Najib Razak, prime minister, suggested in March that the economy would flatten out this year, downgrading an earlier forecast of 3.5 per cent growth in GDP to a range of 1 per cent to 1 per cent contraction.
Mr Najib said the government expected a technical recession – usually defined as two successive quarters of year-on-year contraction – followed by a resumption of growth in the second half of the year.
The prime minister said the impact of fiscal stimulus measures worth about 10 per cent of GDP would ensure that the contraction was less severe than in Singapore, which last week announced a revised 10.1 per cent fall in first-quarter GDP.
Mr Najib indicated that the outlook had deteriorated since his last forecast. “The figures don’t look very encouraging because our export figures are badly affected,” he said. “There might be some tweaking, but the tweaking will be more on the negative side.”
Malaysia’s exports fell 20 per cent in the first quarter compared with the same three months of 2008, although the rate of decline appears to be on a moderating trend. Exports fell 15.6 per cent year on year in March compared with 28 per cent in January.
Zeti Akhtar Aziz, central bank governor, said she expected “a significant contraction” in the first half of the year, with negative growth likely over the full year. Growth edged up a mere 0.1 per cent in the fourth quarter of 2008.
Senior officials expressed sharply different views on the likely timetable for a return to strong growth.
Nor Mohamed Yakcop, a former deputy finance minister who heads the government’s economic planning unit, said Malaysia remained confident of becoming a fully developed economy by 2020, which would require average GDP growth of 7.5 per cent for the next 11 years.
Mr Nor Mohamed forecast a quick rebound in western demand, dismissing suggestions that it might remain low for years as consumer savings rates rise in response to the credit crunch and falls in house prices.
“I don’t think [the US savings rate] will go from zero to 10 per cent, I think it will go from zero to 1 to 2 per cent in the next few years,” he said.
“To change a pattern of consumption that has gone on for quite some time within a period of a few years is not going to happen. It is a matter of psychology.”
Mr Nor Mohamed said 2009 “will be a bit difficult but for 2010 onwards, we should be back on the trajectory”, pointing to Malaysia’s plans to expand domestic consumption and increase trade with the rest of Asia as drivers of future growth alongside western demand.
“Our whole objective in this new economic model is to move away from the tepid growth rate of 4.5 per cent [typical of the 1990s] to something that is higher, certainly in the region of 6 to 7 per cent,” he said.
Mrs Zeti said the economy would benefit strongly from rising domestic consumption, which has risen from 40 per cent of GDP to 53 per cent in the past nine years, and from rapidly increasing trade with Asia.
However, Mrs Zeti was much more cautious on the prospects for a quick recovery and a return to rapid growth.
“Our assessment is that it will be a long road to recovery,” she said.
“The outlook we see is that even if there is a recovery in the global economy, it is going to be a slow recovery, and it will not be the kind of V-shaped recovery we had previously.”
Mrs Zeti forecast “several years of low-growth” for crisis-affected economies, with direct knock-on effects for Malaysia.