Malaysian confidence down, ringgit won't be budged

Malaysian confidence down, ringgit won't be budged

KUALA LUMPUR (AP): New economic research released Tuesday lowered Malaysia's economic growth prospects this year from 5 percent to 4 percent and showed that consumer confidence was slumping as people worry about their job prospects.

The Malaysian Institute of Economic Research released a quarterly report stating that weak labor markets are weighing on consumers' minds, while the slowdown in the U.S. economy and uncertainties about government pump-priming are likely to shrink gross domestic product growth.

The economy should grow far below 4 percent in the first half of the year, with first quarter growth "very, very low," Mohamed Ariff Abdul Kareem, executive director of the institute, told a news conference.

Mohamed Ariff said that the central bank's revision last month of its forecast for annual GDP growth, from 7 percent down to between 5 percent and 6 percent, was "off the mark."

Mohamed Ariff also expressed concern over lower international reserves, which dropped to US$27.2 billion as at the end of March versus $28.7 billion as at March 15. The shortfall has been attributed partly to rising overseas investments by Malaysians.

"We have to bring that under some kind of control for the time being," Mohamed Ariff said. "It will be a long time before it brings income back home."

Malaysia should float the ringgit, which has been pegged at 3.8 to the U.S. dollar since September 1998, as soon as the economic growth picks up, Mohamed Ariff said, saying the exchange rate has implications for exports, long-term investment and growth.

But separately, Prime Minister Mahathir Mohamad dismissed suggestions that the ringgit is overvalued, saying Malaysia will not be pressured into repegging it because of other depreciating regional currencies.

"Even if we re-peg lower to make things cheap and competitive, there will not be a good market for our products and services if demand from the U.S. and the economies depending on it spiral down," Mahathir was cited by the national news agency Bernama as telling reporters.

The institute's sentiments index fell to 105.7 points in the first quarter, substantially down from 120.70 points in same quarter last year and the previous quarter's 115.6 points. Private consumption is expected to decelerate to 6.5 percent growth in 2001 from 12.4 percent in 2000.

Consumers are worried not only about jobs, but are increasingly concerned that their finances will worsen in the short-term, the report said. It noted that spending on home- related goods is bottoming out and even enthusiasm about buying computers is waning.

"Clearly, consumers are increasingly concerned about jobs and incomes," the report said. "As long as the job market is shrinking, a quick rebound in spending looks quite remote in the near future."

More than 3,000 workers were laid off in the first quarter, the deputy human resources minister said last week, but the unemployment rate remains below 4 percent and the country is considered to have full employment.