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Wednesday October 22, 2008

Stabilising commodities to mitigate slowdown

KUALA LUMPUR: The Malaysian economy is set to slow to 4% in 2009 due to the impact from sluggish global economic growth, but stabilising crude oil and crude palm oil (CPO) prices will help mitigate the slowdown, analysts said.

“We’ve a forecast gross domestic product growth of 4% for next year, definitely not the most conservative in town but at a level we’re comfortable with since Bank Negara will more than likely come out with a figure of between 4% and 5%,” said Chris Eng, associate director at OSK Research Sdn Bhd.

Chris Eng

He said even if several major economies were going through a recession, the demand for oil would still hold.

“It may be lower for a short while but eventually it will stabilize in the region of US$80 to US$100 per barrel next year,” Eng said, adding that CPO was also oversold.

CPO tends to move in tandem with oil prices as it can be used as feedstock in the production of biodiesel.

Oil, which is hovering around US$70 to US$75 per barrel, is 50% down from its all-time high in July while CPO, which is trading around RM1,650 to RM1,700 currently, is off its high of almost RM4,500 a tonne in March.

Nevertheless, he said Malaysia would start to feel the impact from the slowdown in two or three months as demand for electrical and electronic products and commodities slow down, thereby affecting exports.

Eng said lower revenues from commodities such as oil and CPO would make it harder for the Government to pump prime the economy while inflation, although coming off, would still affect most people until the second quarter of next year.

“The question is still ...on whether there will be a global recession although recession has hit several Asian and European countries,” Eng told StarBiz.

He said Malaysia was still in a good position compared to its neighbours.

“Our banks have been prudent and conservative and in terms of operational risks, we’re better prepared than Indonesia and Thailand since local banks are leveraged to the mid-teens while corporations are also more risk-averse ever since the Asian financial crisis,” Eng said.

Meanwhile, Country Heights Holdings Bhd group managing director Mark Rozario said the property market would be challenging next year.

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