By CECILIA KOK
There have been too many opinions about what 2012 would hold for the global economy but in less than two weeks, we will know the official assessment of the situation.
The International Monetary Fund (IMF) will unveil its latest forecasts the most authoritative assessment for the global economy on either the first or second day of the Lunar New Year.
Judging from what officials at the Washington-based fund have said recently, the picture is unlikely to be rosy.
IMF chief economist Olivier Blanchard was quoted by Bloomberg last week as saying that the fund would make a “fairly substantial” cut to its forecast for global gross domestic product (GDP) growth for 2012.
Blanchard's comments followed IMF managing director Christine Lagarde's recent assertion that the fund's new forecasts would be “consistent with reality” in view of the risks posed by the sovereign debt crisis in Europe on the global economy.
The IMF has revised its 2012 global GDP growth forecast in September last year, when it cut it down to 4% from 4.5% in June.
According to a Bloomberg report, Lagarde had recently told reporters that “2012 would not be a walk in the park” and that we should all be prepared for it.
Weighing down
As a small and open economy, it's hard for Malaysia to be insulated from the effects of a global economic slowdown.
Last November, Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah put the magnitude of the impact into perspective when he told a seminar that a one percentage point movement in global growth would translate into a change of 0.5 percentage point movement of Malaysia's GDP in the same direction.
As it stands, the global economy remains weak, as it is dragged down by the fundamental problems faced by key advanced economies such as rising public debt burden, high unemployment rates, tight bank lending conditions and waning business and consumer confidence. Although some leading indicators have shown that improvement could be seen in some of the key advanced economies, it is still too early to declare that the worst is over.
The world continues to wait for further signs of stabilisation in the global economy before it could really heave a sigh of relief.
Meanwhile, Malaysia, like many other export-driven economies in Asia, would continue to see the prevailing downside risks affecting its economy mainly through the external trade and investment channels.
For one thing, the global uncertainty could continue to weigh on the demand for Malaysian goods and services and the prices of key commodities one of the major contributors to the country's economy.
Risk aversion could intensify leading to capital outflow and a lower propensity to invest in the country.
Recent data on the trade performance of Malaysia underscores the vulnerability of the country's economy to external weakness.
According to the Department of Statistics, November exports growth had slowed to 8% year-on-year (y-o-y) from 15.4% y-o-y in the preceding month, while imports growth accelerated to 8.4% y-o-y compared with 4% y-o-y in October. Trade surplus for November narrowed to RM9.5bil from RM13.3bil as a result of imports growth outpacing that of exports.
Most economists expect further moderation of Malaysia's external trade in the months ahead, as global economic uncertainty continue to loom, dampening overseas demand for the country's products.
On a positive note, however, some economists reckon that the recent uptick in global Purchasing Managers' Index could bode well for Malaysia's external trade, but that remains to be seen.
CIMB Research chief economist Lee Heng Guei, in his recent report, asserts his view of a slower trade growth for Malaysia going into 2012 on flagging overseas shipments of electrical and electronics and easing contribution of commodity sales. He expects the overall trade growth for the country this year to dwindle to around 3% to 4% from a revised estimate of around 8% to 9% in 2011.
The official forecast by the International Trade and Industry Ministry is trade growth of around 5% to 7% in 2012, compared with 7% to 9% in 2011.
Driving growth
Despite the external weaknesses that could cause one of the country's main engines of growth to lose steam, the Government remains confident that Malaysia could achieve strong growth of between 5% and 6% in 2012, driven by robust domestic demand.
Some economists remain sceptical, however, citing that the weak demand from external sector could have negative spill-over effects on some domestic sectors.
They believe that although Malaysia would experience growth this year, the momentum would not be as robust as the Government had projected, and that the country's GDP growth for 2012 could fall below the official target.
If the analysts are correct, Malaysia's economy would likely experience a sharp slowdown from the fourth quarter of 2011 to the first two quarters of this year before rebounding in the second half.
Malaysia is expected to announce its GDP numbers for the final quarter of 2011 and the overall growth for the year in the middle of next month.
Full-year growth for 2011 would likely be between 5% and 6%, meeting the target set by the Government and underscoring the resilience of the country's domestic sector in the midst of intensified global economic uncertainty.
Malaysia's economic endurance would likely be put to the test again in 2012, as the global economic uncertainty, which continue to pose significant downside risks to growth, has yet to be resolved.
While the Government is banking on its ambitious private sector-ledEconomic Transformation Programme to work its way naturally to sustain the country's economy in the event of another global economic downturn, some economists believe it would be a challenge for the private sector to continue to contribute meaningfully to the country's GDP growth in such a scenario.
The most likely outcome in a worse case scenario, they say, is for the public sector to be main driver and spend its way out of a potential slowdown.
As Credit Suisse says in its recent report: “The Malaysian government will likely to opt for more expansionary fiscal policy, boosting spending to stimulate growth, and postpone its fiscal consolidation plan.”
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