ADB Not too Bullish about Malaysia's Economic Recovery

Singapore's Business Times has this to report today(23 September 2009).

Asia’s emerging economies are proving to be more resilient than had been feared in the face of the global financial and economic downturn and will recover faster than expected, the Asian Development Bank (ADB) said yesterday in its latest Asian Development Outlook.

Led by China, the region as a whole will grow by 3.9 per cent this year, rather than the 3.4 per cent forecast just six months ago while next year it should reach 6.4 per cent against an earlier forecast of 6 per cent, the ADB said.

But Southeast Asia's “more open” economies will fare badly. Singapore is forecast to see its GDP contract by 5 per cent this year before returning to 3.5 per cent growth in 2010, the ADB said. Pulled down also by Malaysia and Thailand, Southeast Asian growth will fall to just 0.1 per cent this year.

“Despite worsening conditions in the global economic environment, developing Asia is poised to lead the recovery from the worldwide slowdown,” said ADB chief economist Lee Jong-Wha. The upbeat tone of the ADB report contrasted sharply with the view taken by the IMF in its latest World Economic Outlook published yesterday in which it warned that recovery from global recession “is expected to be slow”.

Warning of “concerns about the prospect of long-term damage to the path of global output”, the IMF said that some of the global output losses caused by recession could prove to be “permanent”, damaging government revenues and threatening future fiscal crises.

The prospects of a much hoped-for “V-shaped” recovery in the global economy, in which output quickly returns to pre-crisis levels, are not justified by evidence from previous recessions, especially where these are linked to banking system crises, the IMF suggested.

On a more optimistic note, the ADB said that “firm action by many governments and central banks, the relatively healthy state of financial systems prior to the global crisis, and the rapid turnaround in the region's larger, less export-dependent economies, have all enhanced developing Asia's growth prospects”.

The ADB's growth forecast for East Asia was upgraded to 4.4 per cent in 2009, from the 3.6 per cent projected earlier. In China, aggressive monetary easing and massive fiscal stimulus bolstered the region's largest economy, which is now forecast to grow by 8.2 per cent in 2009 and 8.9 per cent in 2010.

A shallower contraction in South Korea is also expected on the back of effective fiscal stimulus measures. Meanwhile, the economies of Hong Kong and Taiwan are likely to “shrink more sharply on account of the severe drop in the demand for their exports”, the ADB said.

Growth in Southeast Asia is projected to fall to 0.1 per cent this year, against expectations of 0.7 per cent growth as of March. “The more positive outlook for Indonesia and Vietnam failed to offset the deteriorating prospects for the more open (Malaysia and Thailand) and smaller (Brunei and Cambodia) economies,” the ADB said.

By contrast, forecast growth for South Asia has been upgraded sharply to 5.6 per cent this year. South Asia's “limited reliance on trade partly shielded it from the adverse effects of the global slump”, the ADB said.

India is now expected to grow by 6 per cent this year thanks to fiscal stimulus and an upturn in business confidence. Despite improved prospects, “the regional outlook should not make developing Asian economies complacent”, Lee said.

“A protracted global slowdown or the hasty withdrawal of stimulus packages can degrade the region's ongoing recovery,” he added.

So being an open economy and using the export model of growth seems unlikely to work for Malaysia.So it's back to pump-priming and more local civil engineering works to be funded by the government. But watch your imports!