Author: Gregore Lopez, ANU
Malaysia’s main challenge in 2009 will not be the global financial meltdown. Rather, it will be continued grandstanding between the ruling coalition and, since March 8th 2008, a much stronger opposition. The aftermath of March 8th, 2008 produced a lame duck Prime Minister with a lame duck government. The Prime Minister, Ahmad Badawi, instead of gracefully resigning for leading the United Front (Barisan Nasional) to its worst ever electoral results, stubbornly held on to the party presidency and Prime Ministership of the country.
However, members from within his party (United Malay National Organisation – UMNO) and the United Front were calling for his resignation. Simultaneously, the newly constituted opposition coalition – The Peoples Coalition (Pakatan Rakyat) led by the charismatic Anwar Ibrahim, was threatening to overthrow the ruling government through mass defection.
Author: Rajiv Kumar, ICRIER, New Delhi
The Paris-based International Energy Agency’s (IEA) recent report includes revised forecasts for world oil demand in 2009. IEA’s shocking estimate is that global demand for oil in 2009 will decline by half a million barrels per day (bpd) than in 2008! This is based on the IEA’s estimates that global economic growth will be a mere 1.2 per cent for all economies after being revised downwards from the nearly 3 per cent forecast earlier.
This implies that OECD economies will post a negative growth in 2009 and emerging economies are also likely to achieve only moderate GDP growth. China is expected to grow only at 6.5 per cent, the lowest rate in eight years, despite the massive stimulus that the authorities announced at the end of last year. Given the weakness in Chinese and US demand¸ global oil prices are likely to remain extremely soft this year.
What are the implications for India?
Special Author: Suman Bery, Director of NCAER, New Delhi
The recession now present in advanced economies seems set to continue for a while yet.
The annual Neemrana conferences on the Indian economy provide a valuable opportunity to take stock of the state of the US and world economies, and the implications of global developments for the Indian economy.
The conferences are held annually at the Neemrana Fort Palace hotel in Rajasthan. They are co-hosted by NCAER and ICRIER. International (primarily US) participation is organised by the NBER, arguably America’s most respected network of academics engaged in research on issues of economic policy. The format is designed to encourage informal, off-the-record discussion on a range of current issues in economic policy.
Special Author: Doan Hong Quang, World Bank, Vietnam
Vietnam began the year 2008 with high expectations. There was exuberance at the admission to the WTO and record growth of 8.5 per cent was recorded in 2007. The government set an even higher target in 2008, aiming for growth at 8.5-9 per cent.
Events took a seemingly unexpected turn. Signs of overheating, already evident at the end of 2007 amidst the asset bubble and rising inflation, became more and more visible towards the end of the first quarter.
The VN index lost almost 45 per cent of its value in just the first three months. The CPI was already running at 9.2 per cent for the first quarter, corresponding to a year-on-year rate of nearly 20 per cent, much higher than in neighbouring countries. Inflation rose from month to month and peaked in August, when the year-on-year rate reached 28.3 per cent.
To some extent, the price hike resulted from the surge of world prices, especially food and fuel prices. With a very open economy and a stable exchange rate, price rises in international markets were transmitted directly to domestic prices. Vietnam still maintains controls over prices of some essential goods and services, but the evidence shows that there were close correlations between the movements of international and domestic prices in controlled commodities.
Special Author: Quah Boon Huat, MIER, Malaysia
The economy in reverse
The Malaysian economy was not spared any damage in 2008, a year that will be remembered as a period of turbulence, when a deadly cocktail of bad US sub-prime loans, the financial-liquidity crisis, high commodity prices and soaring inflation buffeted the global economy.
Against a backdrop of quarter-by-quarter falls in the country’s economic growth rate, 2008 was more about rare economic highlights than milestones.
Special Author: Yiping Huang, Citigroup and ANU
China enters 2009 in a vastly different situation from what it was in a year ago. At the beginning of 2008, the biggest macroeconomic challenges were overheating and inflation. Now, they are a slump in growth and deflation.
This sea change within a matter of 12 months had no single cause. The People’s Bank of China (PBOC) continued to tighten monetary policy aggressively during the first half of 2008, including significant rate hikes and rapid currency appreciation, in order to control inflation. But global recession was probably a far more important contributor to the reversal of China’s macroeconomic trend. Since mid-2008, industrial production has decelerated sharply, power generation has collapsed, and even the growth of exports turned negative in recent months. The Purchasing Managers’ Index (PMI) already pointed towards a deep manufacturing recession in China.
Author: Aaron Batten
PNG had another interesting year in 2008. The first half of the year saw economic growth remain strong as the country continued to benefit from yet another boom in the price of its commodity exports. High resource prices underpinned a significant expansion in the manufacturing, construction and agriculture sectors. Towards the middle of the year, however, poor monetary responses to a prolonged growth in domestic liquidity, coupled with a continued strong external sector, meant that inflationary pressures began to increase, with inflation rising to 13.5 per cent in September 2008.
September, of course, also marked the onset of global financial crisis. Barring a couple of jitters on the PoMEX, PNG’s economy weathered the direct impacts of the crisis relatively unscathed. In large part this was because of the healthy supply of foreign exchange reserves and domestic bank liquidity built up over previous years which gave the financial sector sufficient flexibility to cope with any adjustment costs.
The flow on effects of the crisis have led to a large downturn in the price of many of PNG’s key commodity items which had been driving revenue and output growth. This has had an immediate impact on the Government’s fiscal position with the 2009 Budget predicting a 25 per cent overall decline in domestic tax revenue.