Malaysia's growth for the year will be volatile as the country's relatively open economy and trade links feel the impact from the uncertainty from the eurozone as well as slower growth globally.
Standard Chartered Bank's group head of global research and chief economist Dr Gerard Lyons said that Asia's economies were not decoupled from the developed economies but were better prepared compared with the 2008/2009 global financial crisis in weathering another downturn.
“It's still the same case this time around but the economies are also diversified with firmer growth,” he said at a briefing for the bank's clients here yesterday.
StanChart regional head of research for South-East Asia Tai Hui said the economies of emerging Asia as well as Malaysia would be hit by lower external demand due to their dependence on trade with sub-par growth for most of the region.
“Their dependence on trade will mean that these economies are more susceptible to a fallout while growth will be volatile due to their open economies,” he added.
Tai forecast 2.7% gross domestic product growth for Malaysia with commodities to be the key determinant of growth and he expected the ringgit to weaken to 3.30 against the US dollar before recovering through the year to end 2012 at 3.03.
He said Malaysia's first-quarter growth would be the lowest on a combination of the external environment and no loosening of monetary policy. He expected a rate cut following the March meeting of Bank Negara's monetary policy committee to provide a bit of support going forward.
Lyons said Malaysia's long-term growth would be dependent on credible policies and the economy's links to Asean as market size matters when compared with China and India.
He said Standard & Poor's downgrade of several eurozone members' sovereign credit rating as well as negative outlook for 13 of the 17 members of the single-currency union was expected by the financial markets and not “a major shock”.
“This should be a reminder of what's happening and the ongoing challenges in the first-half of this year,” Lyons said, adding that it would take a long time for the developed economies of the West to recover as it would take them a long time to overcome problems associated with the debt overhang.
In a briefing to clients earlier, he said Asia would experience hot money inflows in the second-half of the year on strong liquidity and higher growth compared with Europe where policy measures would deter investors.
Tai said Malaysia would need to have a strategy on how to deal with competition from China and increasingly from Indonesia and Vietnam.
“The future of Malaysia depends on what sectors and industries to focus on and also improving on branding and marketing,” he said.
Meanwhile, Credit Suisse AG analysts said in a report that Japan, Malaysia and Thailand were the top three countries in the investment bank's January HOLT Country Ranking Model, with Malaysia earning the biggest upgrade.
They said Malaysia was ranked first among the MSCI Asia-Pacific countries for market and cash-flow revisions sentiments while by comparison, the three bottom-ranked countries were Indonesia, India and Singapore.
“All three markets (Japan, Malaysia and Thailand) score highly on our sentiment indicators while Japan also continues to look attractively valued.
“We note that market sentiment remains extremely negative in China while it looks the cheapest on our valuation factors,” they said.