Malaysia's growth seen moderating

Malaysia's growth seen moderating

KUALA LUMPUR (Reuters): Malaysia's economy grew 6.5 percent year-on-year in the fourth quarter of 2000, expanding a blistering 8.5 percent during the whole year spurred by exports of electronics and semiconductors.

But the government and economists expect growth to moderate in 2001 because of an expected slowdown in the United States, a key trading partner, and regional sluggishness led by Japan.

Malaysia has trimmed its economic growth forecast to 5.8 percent in 2001 from an earlier projection of 7.0 percent.

But private economists are less optimistic and expect GDP to expand by only 5.2 percent in 2001.

The statistics showed the economy grew 0.7 percent in the October-December quarter, versus the preceding quarter.

Malaysia, along with South Korea, has recovered from deep recession faster than other regional economies following the Asian economic crisis of 1997-98.

"Growth has largely been due to manufacturing and exports. If you take that out it is barely three percent," said Eddie Lee, regional economist at Vickers Ballas.

"The regional slowdown led by the contraction in manufacturing in South Korea, Taiwan and Japan will hit Malaysia hard," Lee said.

Signs of an inventory build up, lay offs, slowing exports of electronics and semiconductors, depressed consumer and business sentiment are all worrying economists.

Malaysia's exports dipped 11.4 percent year-on-year to 30.2 billion ringgit ($8 billion) in December, the first monthly fall since February 1999, while industrial output the same month rose 15.1 percent.

"By comparing these two figures, we can conclude that production growth is outpacing sales and unsold products are gradually building up in warehouses," said Kevin Ng, economist at ABN AMRO.

"I expect the trend to continue this year particularly as we expect slower export orders," Ng said.

As inventories begin to pile up in Malaysian warehouses, companies are laying off workers to cut costs.

Latest data from the government's Economic Planning Unit show 2,601 jobs were lost in December, the highest since January 2000.

"The figure is very small compared to the total labor force but nonetheless the signs are not encouraging," said an economist at a local investment bank.

A slow down in domestic consumption and investment, dashing hopes that the two sectors would counter the fall in external demand, has worsened the economic gloom.

"The downturn has yet to run its course. It can be deep and swift," Lee said.

Growing dissent within Prime Minister Mahathir Mohamad's ruling United National Malays Organization and a resurgent opposition led by Parti Islam se-Malaysia has raised questions over the ruling alliance's long-term political future.

Another risk factor looming on foreign investor radars is speculation over whether Malaysia should repeg its currency.

"The government should provide a road map on capital controls," said Manokaran Mottain, economist at SBB Securities.