Malaysia: Outlook for 2008-09

From the Economist Intelligence Unit

AUG 14 — The ruling Barisan Nasional coalition government is expected to remain in power throughout the forecast period under the leadership of the prime minister, Datuk Seri Abdullah Ahmad Badawi, who does not plan to retire until 2010.

Despite losing a significant number of parliamentary seats at the March 2008 general election, the BN still has a large enough majority to pass the bulk of new legislation unchallenged.

Datuk Seri Anwar Ibrahim, the de facto leader of the largest opposition party, the Parti Keadilan Rakyat, will continue in his attempts to persuade BN legislators to switch sides, but he faces a number of obstacles.

The Economist Intelligence Unit expects real GDP to grow by 6% in 2008.

Owing to weaker price trends in global commodities in 2009 than forecast in our last report, we now expect the economy to expand by 5.6% in 2009 (compared with 5.8% previously).

We expect consumer price inflation to peak at 26-year highs in the months ahead, and forecast that it will average 5.4% during 2008, up from 2% in 2007.

The ringgit is expected to remain on an appreciating trend against the US dollar, averaging RM3.2:US$1 in 2008 and RM3.14:US$1 in 2009.

The merchandise trade surplus will grow to US$41.7 billion in 2008, from US$37.3 billion in 2007.

Monthly review

Umno, which dominates the BN coalition, has admitted that it has held talks with Pas, one of the parties in the Pakatan Rakyat opposition alliance.

Anwar was arrested on July 16 in connection with a sodomy charge filed by a former aide. He still claims that the charge is politically motivated and has been made to stop him from forming a new government.

Anwar's wife, Datuk Seri Dr Wan Azizah Wan Ismail, tendered her resignation as a member of Parliament on July 31. Anwar has already pledged to contest her seat in the forthcoming by-election.

Bank Negara Malaysia left interest rates unchanged at a scheduled policy meeting in July.

At the start of August government officials hinted that fuel prices could be cut in the weeks ahead if oil prices continued to fall on international markets.

Consumer price inflation stood at 7.7% in June, its highest level in 26 years.