Nov. 2, 2010 -
PRLog -- The Malaysian economy expanded by a better-than-
expected 10.1% y-o-y in Q110, accelerating from the 4.4% rise registered in Q409. Importantly, the overall growth figure was bolstered by improving global trade, as export rose by 19.3% y-o-y, faster than the 6.0% increase recorded in the previous quarter. Therefore, we have revised our 2010 real GDP growth forecast upwards to 4.9%, from 4.1%. That said, we believe Malaysia will be affected by a double-dip slowdown in China, caused by the bursting of a property bubble, which will slow the country's investment-led growth. As a major trading partner, we expect spillover effects to drag Malaysia's 2011 growth down to 3.4%, revised downwards from 4.7%. On the political front, the Democratic Action Party (DA P) - the largest partner in the opposition Pakatan Rakyat (PR) alliance - won the Sibu by-election in the Malaysian state of Sarawak in May 2010. The opposition's latest win served as a major blow to the ruling Barisan Nasional (BN). PR's victory in Sibu has proven that the East Malaysian parliamentary seats, long considered to be BN's 'stronghold', are now vulnerable to the opposition. Therefore, we maintain our view that the ruling coalition will fail to win back its two-thirds parliamentary majority in the forthcoming general elections, which must be held by 2013. We expect Malaysia's external account to improve in 2010, boosted by a smaller financial account deficit, following better global economic conditions as compared with last year. However, the expected surge in nominal GDP this year should lead to a smaller current account surplus in 2010, coming in at 16.0% of GDP, lower than the 16.5% figure registered in 2009. For 2011, we are pencilling further contraction of the current account surplus to 13.5% of GDP, taking into account the regional impact of an economic slowdown in China, which we believe will adversely affect Malaysia's external sector. Malaysia scores 63.4 in our business environment ratings, which was better than the previous score of 61.5 in 2009. In particular, our institutions sub-index registered a marked improvement, which saw the score rise to 66.9 from 59.4 last year as the Malaysian government improved its internal processes, reducing red tape to help shorten the time needed for key procedures (such as starting a new business). This has helped place the country at an aboveaverage 29th position out of 167 ranked markets. That said, Malaysia is still inferior to its more developed peers, including Hong Kong and Singapore, due to weaker scores in the infrastructure and market orientation sub-indices.
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