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Thursday, October 18, 2007

Malaysia's 2008 GDP growth target faces downside risk if subprime crisis deepens

Malaysia's 2008 GDP growth target faces downside risk if subprime crisis deepens

KUALA LUMPUR (Thomson Financial) - The Malaysian government's 2008 growth target of 6 to 6.5 percent could be at risk if the US subprime mortgage crisis deepens and creates a steep fall in external demand, economists said Thursday.

The International Monetary Fund (IMF) said it's expecting Malaysian growth to slow to 5.6 percent in 2008 from the 5.8 percent estimated for 2007.

'[A] Weaker outlook for the advanced economies is likely to slow export growth (for emerging Asian economies) going forward,' the agency said in its World Economic Outlook report released earlier.

'Slower demand for Asian exports, and electronic goods in particular, and the possibility of further global financial market turbulence are particular downside concerns,' it said.

In September, the Asian Development Bank (ADB), a Manila-based multilateral institution, said it's expecting Malaysia's GDP to grow 5.7 percent in 2008.

Both the IMF and ADB numbers are lower than the official growth targets.

'There is a downside risk to the official forecast as export growth has already been slowing,' said Lim Chee Sing, managing director of RHB Research Institute.

Malaysian export growth is highly dependent on demand from the US but the outlook for the world's largest economy does not look good as chances are that the subprime upheaval is not over yet and is likely to get worse, Lim said.

The latest trade figures showed that Malaysian exports to the US fell 12 percent from last year, suggesting that the slowdown in the US has already filtered down, he said.

The Malaysian economy grew 5.6 percent in the first half, slightly short of the official target of 6.0 percent.

The government has recently announced additional measures to boost the domestic economy, hoping to sustain growth and to shield it from any external shocks.

Prime Minister Abdullah Ahmad Badawi is set to unveil the East Coast Economic Region (ECER) by the end of this month. The ECER is one of the three growth projects outlined in the Ninth Malaysia Plan, the government's 200 billion ringgit development blueprint which will run through 2010.

The other two Corridors are the Iskandar Development Region in the southern Johor state and the Northern Corridor Economic Region, which focuses on infrastructure development in the island state of Penang.

Malaysia has set ambitious investment targets for the development projects but analysts are not impressed with the progress so far.

'The three Corridors have helped to revive investment interest, but actual investment commitments have been slow in coming,' said Citigroup (nyse: C - news - people ) economist Chua Hak Bin in a note this week.

(1 US dollar = 3.37 ringgit)


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