To achieve its growth and income targets, Malaysia will require 2.2 trillion ringgit in new investments.

Malaysia Growth Probably Slowed as Exports Face Risks
August 17, 2010, 6:42 AM EDT

By Shamim Adam and Michael Munoz


Aug. 17 (Bloomberg) -- Malaysia’s economic expansion probably slowed last quarter from the fastest pace in a decade, as signs of cooling global growth cloud the outlook for exports.

Malaysia’s central bank has raised interest rates three times since the start of March, a cycle that may be halted as policy makers take stock of the world economy. Weaker-than- expected economic growth in Japan and slower expansion in the U.S. and China have added to signs that the global recovery may falter, threatening demand for Asia’s goods.

Malaysia’s “industrial activity maintained its double- digit growth in the second quarter, while services output has also been strong,” said Ashira Perera, an economist at Capital Economics Ltd. in London. “Looking ahead, final demand conditions in the U.S. and in Europe, as well as the easing in China’s economic expansion, will weigh on Malaysia’s exports and industrial output. Domestic demand is likely to stay healthy.”

The economy’s expansion has boosted the Malaysian ringgit, spurring the currency to a gain of 8.3 percent against the dollar and 21 percent against the euro this year, the best performance in Asia excluding Japan. The FTSE Bursa Malaysia KLCI Index gained for a third day today and has added 8.3 percent this year.

Inflation Rate

The inflation rate probably climbed to 2 percent in July, the highest level in 14 months after the government cut fuel and food subsidies, according to a separate Bloomberg survey of 15 economists. The Department of Statistics will release the price data tomorrow.

“Inflation remains moderate, and should allow Bank Negara to hold steady through year-end,” said David Cohen, an economist at Action Economics in Singapore.

The International Monetary Fund last week said the $192 billion economy may grow 6.7 percent this year, higher than the government’s forecast for a 6 percent expansion. Southeast Asia’s third-largest economy has “appropriately” shifted its monetary policy to support growth and keep inflation in check, the IMF said.

Growth Targets

Malaysia will target annual gross domestic product growth of 5 percent to 6 percent between 2011 and 2020 to meet its goal of becoming a high-income nation, according to a statement from Prime Minister Najib Razak today. To achieve its growth and income targets, the country will require 2.2 trillion ringgit in new investments, he said.

The government “is working to implement additional measures designed to open markets, improve human capital and reform affirmative action laws to be more market friendly and transparent,” according to the statement.

Recent Malaysian data have signaled a cooling in the economy. Exports increased at the slowest pace in seven months in June, while gains in industrial production were the smallest in four. The economic rebound may slow in the second half after the central bank boosted borrowing costs, the Malaysian Institute of Economic Research has said.

--With assistance from Barry Porter in Kuala Lumpur. Editors: Sunil Jagtiani, Stephanie Phang

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To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net


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