Malaysia May Have Emerged From Recession Amid Global Recovery

Feb. 23 (Bloomberg) -- Malaysia’s economy probably emerged from its first recession in a decade last quarter, giving room for the central bank to raise interest rates from a record low as early as next month.

Gross domestic product increased 3.4 percent in the fourth quarter from a year earlier, after contracting 1.2 percent in the previous three months, according to the median estimate of 14 economists surveyed by Bloomberg News. The figures are due to be released at 6 p.m. in Kuala Lumpur tomorrow.

Central banks around the world are starting to raise interest rates or tighten monetary policy as the global recovery takes hold. Malaysia’s government has said the economy may expand more than the current 2 percent-to-3 percent forecast this year and the central bank has warned that borrowing costs cannot be kept “too low” for too long as growth strengthens.

“We expect Malaysia’s economy to register a positive recovery in the fourth quarter on resilient domestic demand and fiscal stimulus measures while the pace of external demand contraction eases further,” said Alvin Liew, an economist at Standard Chartered Bank in Singapore. “Based on the improved outlook, we believe the central bank can start to focus on normalizing monetary policy from its next meeting.”

Malaysia’s neighbors are among Asian economies that are recovering from the global slowdown. Singapore last week raised its economic growth forecast for 2010, predicting an expansion of as much as 6.5 percent this year. Thailand yesterday said its economy grew a faster-than-expected 5.8 percent last quarter as it emerged from a yearlong recession.

Rising Demand

Malaysia’s industrial production climbed the most in 22 months in December amid an increase in orders for manufactured goods. The government predicts overseas sales will increase 3.5 percent this year after slumping in 2009.

“Positive developments in manufacturing production, financing activity, external trade and labor market conditions reaffirm the assessment that the economic recovery is gaining strength,” the central bank said Jan. 26. “The economy is expected to expand further in 2010, with growth being supported by strengthening domestic demand, particularly private consumption, and further improvements in external demand.”

Bank Negara Malaysia has kept the overnight policy rate at 2 percent for seven straight meetings, the lowest since it was introduced in April 2004. Governor Zeti Akhtar Aziz said Jan. 29 that Malaysia needs to “normalize” rates from their current “unprecedented levels.” Policy makers next meet on March 4.

Stimulus Measures

Malaysia’s $195 billion economy probably shrank 3 percent last year, International Trade and Industry Minister Mustapa Mohamed said Feb. 4. The government is confident of 5 percent GDP growth in 2010, Second Finance Minister Ahmad Husni Hanadzlah said last month.

Consumer prices probably rose 1.5 percent in January from a year earlier, after a 1.1 percent gain the month before, according to the median estimate of seven economists in a Bloomberg survey. The statistics department will release the figures at 5 p.m. tomorrow.

Malaysia unveiled two stimulus plans worth a combined 67 billion ringgit ($20 billion) in 2008 and 2009 to revive growth as the worst global slump since the Great Depression hurt exports of Malaysian Pacific Industries Bhd.’s semiconductors and other goods.

The country still faces competition for investment from the rest of the region even after liberalizing some services industries, including banking and insurance, Trade Minister Mustapa said in August. Approved factory investment declined in 2009 as companies delayed projects and foreign investment more than halved last year.

New Model

The government is working on a new economic model to bolster investments and sustain long-term growth and will unveil its plans next month. In neighboring Singapore, a government- appointed panel this month outlined seven proposals to restructure the economy including doubling productivity and relying less on foreign labor.

“It is the consistent policy in the medium to long term that makes a country competitive, like Singapore, Hong Kong or China,” Francis Yeoh, managing director of Malaysia’s biggest builder YTL Corp., said Feb. 8 in Kuala Lumpur. “I’m not going to advocate short-term stimuli, more subsidies. That is the wrong thing to do.”