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Analysis of Malaysia's Current Economic Outlook

Extracts from this document...

Introduction

First quarter of 2003 saw many events that contributed to the world economy downturn. Considering that the past year has already seen a global economic turndown, so far this year there have been no signs to show that the global economic performance will improve drastically. There is doubt from many parties that Malaysia will not achieve the forecasted growth of 4.5% in year 2003 GDP without any stimulus from the government to weather through the bad times. The two major events that have contributed to the economic slowdown in Malaysia are the US-Iraq war and Severe Acute Respiratory Syndrome (SARS) outbreak. The US-Iraq war officially started on 20th March 2003 and ended on 1st May 2003. What began as retaliation for terrorist activities turned into a pledge to topple the so called "axis of evil" which includes Iraq, North Korea and Iran. Until now there is still no resolution as there is still constant threat from terrorist and from US itself as the President Bush has been threatening to further extend the war to other countries. There is still no world political stability as up to date there is still news of terrorist activities happening worldwide. Lack of stability will affect the world economy as investments will be delayed and reduction in consumption due to uncertainty. The Severe Acute Respiratory Syndrome (SARS) outbreak which has adversely affected the Malaysian economy has left more than 670 people dead and infected around 8000 in roughly 25 countries since it first appeared in southern China last November. Though Malaysia has only recorded 2 deaths, we were not excluded from its effects as our neighbour Singapore was one of the few countries listen on the WHO travel warning list. Though the outbreak has since subsided the effects can still be felt by the aviation and tourism industry. Although the Iraq war was generally between US, its allies and Iraq, the Malaysian economy was also affected in certain ways. ...read more.

Middle

to further increase its effectiveness and strengthen its loan infrastructure facilities. RM600 million will also be allocated to Small Medium Industries Fund and RM400 million (USD105.2 million) to New Entrepreneurial Fund. The New Entrepreneurial Fund is important as it would boost entrepreneurship and prove to be a source of financing. These strategies are meant to bolster domestic growth and investment in new and niche areas and make agriculture the country's third engine of growth. Recent economic data is pointing towards a slowdown in economic growth. Most recently, the Consumer Price Index (CPI) in March, it was revealed, grew marginally by 0.7 per cent year-on-year and 0.2 per cent from February. The figures indicate that consumption is declining and the economy could be moving towards disinflation at a time when domestic spending is integral in supporting the economy. SARS has also dampened demand and people are withholding spending until clearer signs emerge. There is no doubt that the average consumer will be reluctant to spend as there is no guarantee of employment. No doubt, the employees of the tourism sector will be greatly affected as there are wage cuts and lay offs in order for the company to survive. To encourage more domestic spending, the government has resorted to putting more money into consumers' pockets. By providing half month bonus for government servants and lowering the EPF contribution from 11% to 9% for a year, this will eventually lead to an increase in the disposable income of consumers and therefore lead to an increase in consumption. Other measures included in the stimulus package include boosting investments. Highlights to mitigate the effects of a US slowdown include stimulating foreign investments by cutting red tape by liberalizing the Foreign Investment Committee (FIC) Guidelines which will help create a more conducive and investor-friendly environment. Over time, this should help spur the continued participation of foreign investment in the domestic capital market. ...read more.

Conclusion

A Center for Disease Control (CDC) will also be set up in order to stave off any further widespread outbreak of an infectious disease. CONCLUSION. All things taken into consideration, the US-Iraq war and SARS outbreak did much to slowdown the recovery of the Malaysian economy that has since been on the turnabout from the 1997 recession. We too have to take into account the slowdown of the US economy which will affect us as it is one of our major importers. The stimulus package came as a much need relief to the industries badly affected for example the aviation, tourism, and hotel industry. Businesses generally benefited from the disbursements of funds in the form of loans or incentives. In order to maximize the effects of the package, it depends on the effectiveness of the delivery package. The relaxation of the FIC guidelines is an effective method to bring in foreign investment. Other measures were also important to stimulate investment in order to boost domestic growth. The decision of the government to focus on domestic growth instead of relying on exports was a wise decision as the ability of the world economy to recover any time soon is still obscure. The measures to stir consumption were also vital to the recovery of the economy as domestic consumption is currently integral in supporting the economy. While these incentives are expected to achieve its target of mitigating the effects of the US-Iraq war and the SARS outbreak, the determinant factor in its success lies in the ability of the government to effectively implement the measures. While these measures were also crucial to address the needs of the people, the challenge before Malaysians is the ability to proactively market ourselves, seek out investments in an environment where funds are limited and attract the right investors to take serious notice of Malaysia in order to achieve the targeted growth of 4.5% in the GDP for year 2003. ...read more.

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