By Asrul Hadi Abdullah Sani
PUTRAJAYA, Jan 14 — Rating Agency Malaysia (RAM), the country’s leading credit rating service, has joined Citigroup in predicting a technical recession for Malaysia in the first and second quarter of the year.
RAM’s chief economist Dr Yeah Kim Leng said, however, that domestic demand could help offset the decrease in exports.
Citigroup had said yesterday that Malaysia may slip into a technical recession in 2009. Citigroup Global Market has also downgraded its forecast for Malaysia’s 2009 gross domestic product (GDP) to 0.5 per cent from 3.1 per cent.
A technical recession is defined as two consecutive quarters in which the economy has shrunk compared to the previous quarter.
“The economy now is going down gradually so we may hit a much lower growth in the first and second quarter.
“I think with the first and second stimulus packages, we may be able avert the technical recession," said Dr Yeah.
Even though the government had earlier projected the country's gross domestic product (GDP) will grow by 3.5 per cent, Dr Yeah thinks that it is more realistic if the target is between two to three per cent.
The government recently put in place a RM7 billion stimulus package to help tackle what some people are calling an economic tsunami that is heading towards Malaysia.
However Dr Yeah believes that the government needs to also monitor the situation and ensure that the private sectors’ confidence is sustained.
“It is very important that the private sector does not cut back on all of their spending. So I think even that the domestic demand in Malaysia is going down moderately, it is important to ensure that not everybody cuts back in spending.
“At the same, we have to be more cautious and efficient in our spending.”
Dr Yeah argued that a technical recession is a worst case scenario for Malaysia and is “the lower end of the range of forecast by private economists.”
This is because government linked companies (GLCs) are still strong and the monetary stimulus packages will help boost domestic demand plus help weather the economic downturn, he said.
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