Malaysian Stimulus Package No Cheer for Petchem Industry
SINGAPORE (ICIS news)--Malaysia’s hurting petrochemical industry does not expect much boost from the government’s new ringgit (M$)60bn ($16.3bn) fiscal stimulus package given the inevitability that the economy will shrink this year, analysts and industry sources said on Thursday.
The global demand slump was proving to be too serious that the erstwhile strong Asian economies are being sucked into the giant whirlpool of recession one by one. Malaysia will be joining its southeast Asian neighbours Thailand, Singapore and Hong Kong in registering full-year GDP contraction this year.
Economists project the Malaysian economy to contract at a range of 0.8% to 3.0% this year, in stark contrast with the 4.6% growth recorded in 2008 due to declining exports.
The economy registered a 0.1% expansion in the fourth quarter of last year, its slowest quarterly growth since 2001, with exports showing continued deterioration this year.
“The risk is very much on the downside, there is a possibility that it is going to see a contraction this year,” said Joanna Tan, economist at consultancy firm Forecast.
“Even as the government dishes out a significant stimulus package, its effects are unlikely to reach the economy quickly enough to keep economic growth in positive territory for 2009,” said Alvin Liew, regional economist at Standard Chartered Bank, in a research note.
Plastic moulders in the country are sanguine about getting any form of incentive out of the government’s second attempt to boost consumption, said a southeast Asian polystyrene (PS) producer.
The country imposes a 5% import duty on high impact PS (HIPS) resins that adds to the manufacturing costs for plastics, the source said.
The Malaysian Plastics Manufacturing Association (MPMA) has expressed disappointment as the government sidestepped its request for the removal of the 10% sales tax on plastics goods and the reversal of the 26% hike in electricity tariffs implemented in June last year.
The country’s sales of plastic goods were expected to continue sliding down in the first quarter after recording a quarter-on-quarter fall of 12% in the three months to December.
Exports of these products, which accounted for 60% of total sales, declined 21% in the fourth quarter.
Malaysia’s overall exports plunged 27.8% year-on-year in January.
The announcement of the second fiscal stimulus package was largely seen as politically-motivated, timed just before the country’s deputy prime minister and finance minister Najib Rajak steps into his new post as Prime Minister in end-March.
“We would think that with March handover coming up, the budget looks to be more like a political tool. In Malaysia’s political arena, things are not so smooth-sailing,” said Forecast’s Tan.
Still, the fiscal stimulus package is a welcome development and sorely needed to keep Malaysia’s domestic economy churning although this would not be enough to prevent a full-year GDP contraction, economists said.
“The stimulus package is expected to provide the much needed short-term cushion to avert a protracted economic downturn and hence, help the process of economic recovery,” said Lee Heng Guie, economist at Malaysian brokerage CIMB.
At this point, the government must speed up the implementation of the spending program to buoy up the economy the soonest time possible, economists said.
CIMB projects that the Malaysian economic output to fall between 3.0-5.0% in the first half of 2008.
“Even if things pick up in the second half of the year, GDP will still be down 3.0% in 2009. It wouldn’t be out of line with many economies,” said David Cohen, chief economist at consultancy firm Action Economics.
But the Malaysian government remains a tad optimistic, projecting a worst-case scenario that GDP will contract by just 1%.
The global demand slump was proving to be too serious that the erstwhile strong Asian economies are being sucked into the giant whirlpool of recession one by one. Malaysia will be joining its southeast Asian neighbours Thailand, Singapore and Hong Kong in registering full-year GDP contraction this year.
Economists project the Malaysian economy to contract at a range of 0.8% to 3.0% this year, in stark contrast with the 4.6% growth recorded in 2008 due to declining exports.
The economy registered a 0.1% expansion in the fourth quarter of last year, its slowest quarterly growth since 2001, with exports showing continued deterioration this year.
“The risk is very much on the downside, there is a possibility that it is going to see a contraction this year,” said Joanna Tan, economist at consultancy firm Forecast.
“Even as the government dishes out a significant stimulus package, its effects are unlikely to reach the economy quickly enough to keep economic growth in positive territory for 2009,” said Alvin Liew, regional economist at Standard Chartered Bank, in a research note.
Plastic moulders in the country are sanguine about getting any form of incentive out of the government’s second attempt to boost consumption, said a southeast Asian polystyrene (PS) producer.
The country imposes a 5% import duty on high impact PS (HIPS) resins that adds to the manufacturing costs for plastics, the source said.
The Malaysian Plastics Manufacturing Association (MPMA) has expressed disappointment as the government sidestepped its request for the removal of the 10% sales tax on plastics goods and the reversal of the 26% hike in electricity tariffs implemented in June last year.
The country’s sales of plastic goods were expected to continue sliding down in the first quarter after recording a quarter-on-quarter fall of 12% in the three months to December.
Exports of these products, which accounted for 60% of total sales, declined 21% in the fourth quarter.
Malaysia’s overall exports plunged 27.8% year-on-year in January.
The announcement of the second fiscal stimulus package was largely seen as politically-motivated, timed just before the country’s deputy prime minister and finance minister Najib Rajak steps into his new post as Prime Minister in end-March.
“We would think that with March handover coming up, the budget looks to be more like a political tool. In Malaysia’s political arena, things are not so smooth-sailing,” said Forecast’s Tan.
Still, the fiscal stimulus package is a welcome development and sorely needed to keep Malaysia’s domestic economy churning although this would not be enough to prevent a full-year GDP contraction, economists said.
“The stimulus package is expected to provide the much needed short-term cushion to avert a protracted economic downturn and hence, help the process of economic recovery,” said Lee Heng Guie, economist at Malaysian brokerage CIMB.
At this point, the government must speed up the implementation of the spending program to buoy up the economy the soonest time possible, economists said.
CIMB projects that the Malaysian economic output to fall between 3.0-5.0% in the first half of 2008.
“Even if things pick up in the second half of the year, GDP will still be down 3.0% in 2009. It wouldn’t be out of line with many economies,” said David Cohen, chief economist at consultancy firm Action Economics.
But the Malaysian government remains a tad optimistic, projecting a worst-case scenario that GDP will contract by just 1%.
quoted from: www.ICIS.com
