Malaysia

MALAYSIA, a middle-income country, has transformed itself since the 1970s from a producer of raw materials into an emerging multi-sector economy. Under the present government regime, Malaysia is attempting to achieve high-income status by 2020 and to move farther up the value-added production chain by attracting investments in Islamic finance, high technology industries, biotechnology, and services. The current administration is also continuing efforts to boost domestic demand and reduce the economy’s dependence on exports. Nevertheless, exports - particularly of electronics, oil and gas, palm oil and rubber - remain a significant driver of the economy.

As an oil and gas exporter, Malaysia has profited from higher world energy prices, although the rising cost of domestic gasoline and diesel fuel, combined with strained government finances, has forced Kuala Lumpur begin to reduce government subsidies. The government is also trying to lessen its dependence on state oil producer Petronas, which supplies more than 40% of government revenue. The central bank maintains healthy foreign exchange reserves and its well-developed regulatory regime have limited Malaysia’s exposure to riskier financial instruments and the global financial crisis.

Malaysia’s economy expanded a robust 5.1 per cent in 2011. The central bank has projected GDP will expand by 4-5 per cent this year, slowing from 5.1 percent in 2011 and, assuming the global economic recovery picks up, 5.1 percent in 2013. Although the Government’s transformation programs have made progress, structural reforms needed to turn the economy into a high-income country can be further accelerated. Meanwhile, latest central bank’s report reveals that Malaysia’s economy grew at an annual pace of 4.7 per cent in the first quarter of 2012, slowing from the previous three months but beating expectations as firm domestic demand helped offset a slump in exports. The first-quarter growth, which beat economists’ expectations of a 4.5 per cent expansion, comes as Malaysia’s net exports slumped 20.8 per cent from a year ago.

Recent trends in Malaysia’s labor markets are encouraging. Unemployment held steady at low levels. Job creation was healthy, accommodating new workers and a higher participation rate. The labor markets are reasonably flexible but can be modernized by protecting workers, not jobs, and by promoting flexible work arrangements to attract women back to the labor force. Women are a largely untapped source of skills in Malaysia. Jobs lie at the core of a strategy to achieve Malaysia‘s objective of becoming a high-income economy that benefits all Malaysians.

The Malaysian economy entered 2012 with increasing downside risks to growth amid softening inflationary pressures domestically.

Monetary policy will continue to facilitate economic growth while managing risks to inflation and the build-up of financial imbalances.

Inflation has started to decline, with stabilising food prices and falling transport costs. Domestic inflation would remain contained in the absence of significant adjustments to administered prices. The global economic recovery towards 2013 would basically aid the rebound of Malaysia’s external sector and hence its economy by 2013 is expected to grow 4.0 per cent.

A report released by the Oxford Business Group in April reveals that healthy domestic demand is expected to drive growth in Malaysia’s banking sector this year as public projects help to stimulate lending. While international factors mean banks may take a more cautious outlook, the system as a whole is well capitalised and soundly managed, standing it in good stead for the future. Malaysia’s banking sector has seen quite an overhaul in the past decade and is now a model of stability. While it seems likely that the international situation will slow lending somewhat in 2012, it will still rise at a respectable rate, and the long-term path should see further growth and reform.

Hong Kong

HONG KONG has a free market economy highly dependent on international trade and finance - the value of goods and services trade, including the sizable share of re-exports, is about four times GDP. Hong Kong’s open economy left it exposed to the global economic slowdown, but its increasing integration with China, through trade, tourism, and financial links, helped it recover more quickly than many observers anticipated. Hong Kong, with seven million inhabitants, has the 39th biggest GDP in the world, bigger than New Zealand, and its per capita GDP was around $34,049 in 2011.

The external environment deteriorated visibly over 2011, with the eurozone sovereign debt crisis emerging as an imminent source of threat to the global economy and with the recovery in the US remaining unsteady. In face of increasing headwinds on the external front, the outlook for Hong Kong’s exports of goods in 2012 is bleak. The Asian markets should provide some cushion to Hong Kong’s external sector especially in the latter part of 2012. Hong Kong’s GDP fell in 2009 as a result of the global financial crisis. In 2010, the economy of Hong Kong bounced back strongly when it grew nearly 6.8 percent. According to the private sector economists, GDP growth in 2011 was five per cent and forecast to be 2.6 per cent in 2012.

Meanwhile, a report published by the China Daily shows that GDP grew to its slowest pace in a year and a half in the first quarter, rising by 0.4 per cent year-on-year compared to three per cent expansion in the last quarter of 2011. The government forecasts an expansion of between one percent and three percent for the full year, the least since 2009, as Europe’s debt crisis threatens trade and the financial services industry. This will be lower than the average growth of 4.5 per cent in the past ten years and the prevailing forecasts by private sector analysts, which mostly fall within the range of 1.5 per cent to 3.5 per cent.

Inflation in Hong Kong has largely stabilised towards the end of 2011. Judging from the current trend, underlying inflation should come down over the course of 2012. The government maintained a forecast for inflation of 3.5 per cent this year. Overall, the underlying Composite CPI is forecast to increase by 4.0 per cent for 2012 as a whole. Consumer Price Index in April rose 4.7 per cent from a year ago, easing from March’s increase of 4.9 percent. The year-on-year rate of increase in April’s CPI remained at 5.6 per cent, matching March, mainly due to eased increases in food prices and private housing rents.

With receding domestic and external price pressures amid a more difficult economic environment, and with a slowing local economy, inflation should ease further, according to private analysts. The IMF predicts Hong Kong’s average inflation to be 2.60 per cent in 2015.

Labour market conditions remained largely buoyant in the first quarter of 2012. Job creation continued across many sectors, pushing total employment to another record high, though this was matched by an even faster growth in the labour force. Hong Kong’s unemployment rate edged down to 3.3 percent in the three-month period ended April 30, defying market expectations, but economists say the ongoing euro-zone debt crisis and uncertain global outlook could weigh on the city’s labor market.

On the external front, upward pressures on global commodity prices have largely abated given the subdued growth outlook in 2012. Hong Kong reported a 6.8 per cent decline in exports and 4.7 per cent fall in imports during March from a year earlier, leading to a visible trade deficit of HK$43.9 billion. Exports of services grew by 3.6 per cent year-on-year in real terms in the first quarter of 2012, following the 5.3 per cent growth in the fourth quarter of 2011. Imports of goods fell by about 3.5 per cent year-on-year in real terms in the first quarter of 2012, in contrast to the 3.1 per cent growth in the fourth quarter of 2011.

South Korea

SOUTH KOREA over the past four decades has demonstrated incredible growth and global integration to become a high-tech industrialized economy. In the 1960s, GDP per capita was comparable with levels in the poorer countries of Africa and Asia. Currently it is among the world’s 20 largest economies. The South Korean economy’s long-term challenges include a rapidly aging population, inflexible labor market, and heavy reliance on exports - which comprise half of GDP. The Asia’s No. 4 economy is forecast to expand 3.6 per cent in 2012 due to solid domestic demand, according to the Korea Development Institute (KDI). The economic growth is predicted to rise to 4.1 per cent in 2013.

According to the Bank of Korea Governor, South Korea must prepare for slower economic growth in the years ahead as it deals with heightened economic uncertainty at home and abroad. The Korean central bank trimmed its economic forecast for this year to growth of 3.5 percent, from 3.7 percent, citing the global downturn and weak domestic demand while the Korea Institute of Finance (KIF) cut its outlook for 2012 from 3.7 per cent to 3.4 per cent. The government is maintaining its 3.7 per cent growth projection for 2012. The Organization for Economic Cooperation and Development (OECD) lowered on its 2012 economic growth outlook for South Korea to 3.3 percent from an earlier estimate of 3.5 per cent amid lingering uncertainties at home and abroad. The outlook downgrade came after local think tanks and the country’s central bank lowered their growth outlook recently. The economy is likely to pick up to 4.25 per cent in 2013.

Consumer prices will remain high throughout the year due to rising crude oil and food prices, which could squeeze private consumption and subsequently have an adverse effect on domestic demand. Last year, the nation’s consumer prices jumped 4 per cent from a year earlier.

The consumer price inflation is officially expected at 2.6 per cent in 2012 due to the economic slowdown and policy effects such as the government’s support for childcare fees. The headline inflation was forecast to rise to 2.8 percent in 2013 amid the faster growth of the economy. For this year, private economists expect consumer prices to go up 3.2 per cent. The outlook for jobless rate was set at 3.4 percent in 2012 and 3.3 per cent in 2013.

South Korea’s trade balance posted a surplus of $2.15 billion in April as reducing exports were offset by falling imports. In the first four months of this year, the surplus amounted to $3.82bn. Exports, which account for more than 50 percent of the economy, contracted 4.7 percent on-year to $46.24bn in April, while imports fell 0.2 percent to $44.11bn over the cited period. Exports were projected to expand 7.1 percent in 2012 due to the global economic slowdown, but forecast to advance 10.7 percent in 2013 due to the global economic recovery.

The expected weakening of the global economy stemming from deterioration in the euro area was cited by the OECD as a major external risk factor to the South Korean economy.

The negative growth was also attributed to continued reduction in exports to Europe and declining outbound shipments of ships and telecommunication devices. A fall in working days stemming from general election last month also contributed to April’s weak exports.

Imports edged down last month as strong demand for energy was offset by weak demand for other commodities, capital goods and consumer goods. The ministry warned that the nation’s trade surplus may decline due to external uncertainties and high oil prices, delayed resolution of Europe’s debt problems, economic slowdown in China, depreciating Japanese yen and high Crude Oil prices.

South Korea’s short-term external debt edged up during the first quarter on foreign purchases of domestic bonds, although it fell as a percentage of total external debt and foreign reserves. Short-term external debt rose to $136.3 billion at the end of March from $136.1 billion three months before. The ratio of short-term external debt to foreign reserves fell to 43.1 per cent, the lowest in nearly six years, from 44.4 per cent in December. The ratio has fallen sharply from 79.1 percent in mid-2008. The ratio of short-term external debt to total external debt owed by South Korea fell to a 12-year low of 33.1 per cent in March from 34.2 per cent at the end of 2011. The nation’s household debts topped $770.88 billion as of the end of 2011.