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Malaysia's H2 economic outlook dims [12-08-2011]  
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The country's growth prospects for the second half of the year, already challenging, will become more so in light of recent events in the United States and the eurozone where policymakers are still grappling with ballooning deficits and looking at ways to cut spending.

Economists told StarBiz that uncertainty was still clouding the global outlook and said external demand would not be perking up so soon. leaving domestic demand in the form of government spending and private investment to boost the economy.

The focus next week would be on the release of the second-quarter gross domestic product (GDP) data scheduled for Wednesday, which most economists have revised downwards due to the slowdown in exports.

MIDF Amanah Investment Bank Bhd chief economist Anthony Dass expects second-quarter GDP to come in at 3.8%, which was a revision from 4.4% made at the end of last year. He has also revised full-year GDP to between 4.8% and 5%, from 5.3% and next year's to between 4.4% and 5.1%.

“The exports-dependent electric and electronic (E&E) industries will continue to be a drag on exports,” Dass said, adding that growth in the second half of the year would depend very much on the domestic front and the roll-out of the public infrastructure projects of the Economic Transformation Programme (ETP).

He pointed out that even the rise of factory output in June by 1% from a year ago could be attributed not to exports but to domestic-driven activities.

Dass believes that Asian policymakers would start to ease on monetary tightening measures despite inflationary pressure in order to boost growth. In this respect, he sees the oevernight policy rate to be maintained at 3% from the earlier forecast of 3.25%. The statutory reserve requirement would be raised by another 50 to 100 basis points from the current 3%.

“Exports will continue to be slow in the second-half while bigger risks may be looming in the year ahead as there are still uncertainties,” Dass said.

TA Securities Holdings Bhd economist Patricia Oh said has drastically brought down second quarter's GDP growth to 3.7% from 6% after export data in June continued to show weakness.

“The delayed roll-out of the ETP projects contributed to the slower GDP expansion. We expect that from July onwards the numbers will see improvement from the projects but there's quite a bit of uncertainty at this point for the outlook to the end of the year,” she said.

For the full-year, Oh has revised GDP growth to 5.4% from 6%.

Meanwhile, AmResearch Sdn Bhd director of economic research Manokaran Mottain said the July/August data would influence the house's next review of the economic performance for the year.

“For now, we're maintaining full-year GDP growth of 5% while for the second quarter, we're looking at 4.2% to 4.3%. The third quarter's GDP will be dependent on the July and August data,” he said.

Manokaran said the downside risks have definitely increased due to the recent Standard & Poor's US credit downgrade and fear that the euro-zone's debt crisis might not be contained.

“I'm not very excited when I see E&E industries still looking weak as the manufacturing sector contributes one-third to GDP,” he added.

Affin Investment Bank Bhd economist Alan Tan has also maintained GDP growth for the year at 5%. “We started the year on a conservative note and the downside risk at the moment will be a recession in the United States, which we believe will not happen,” he said.

Tan said in the event the US economy went into recession, then the house would revise Malaysia's GDP growth. “US growth will be the key factor, we believe that growth will likely come in at between 1.5% and 2% for the year,” he said.

Tan said the US economic recovery would be very slow in the second-half of the year but there would be no double-dip although uncertainty would continue. “The bright spots in all the data is that US private investment continue to hold up while German factory output continue to see growth,” he said.

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