World Bank: Positive outlook for Malaysia

16-06-2008:

KUALA LUMPUR: In the midst of a challenging environment, the World Bank remains positive on the outlook of growth for Malaysia.

“We remain very optimistic in general for East Asia and Malaysia specifically. We see a government that is working hard on the issues that it’s being confronted with. We believe the growth can be sustained,” said World Bank vice-president of East Asia and Pacific Region, James Adams.

“It is not just with Malaysia but more generally, the price changes for last year have presented strong economic challenges to governments. All governments are struggling with those issues and we are pretty confident the governments will come to grips with that,” he added.
Speaking to reporters on the sidelines of the World Economic Forum on East Asia, Adams said the recent changes the Malaysian government had put into place showed that it was committed to coming to grips with the problems it was facing.

“I think the Malaysian government has been an interesting government in terms of macro policy. By international standards it has done a consistently good job. It’s easy to go through a prescription of what the books tell you to do.

“What is hard is for governments reflecting on their particular circumstances to decide how they can implement it effectively, given the political and economic concerns. On those measures, I think Malaysia has done a good job and so we are pretty confident that that record is going to continue,” said Adams.

He said the concern on inflation today was what complicates decisions on policies.
“It makes it hard. When you have price stability, you have more flexibility. I think what we are seeing is, there is no lack of attention on this issue. Everybody sees inflation as a key constraint. The challenge is what policy prescription in a country’s specific situation is best to deal with that,” he pointed out.

“If you are an oil exporter, you are benefiting right now in terms on oil price but you still have to manage the inflation. Every country has to look at its particular circumstances and make decisions on that,” he added.

Nevertheless, Adams reckoned the speed of adjustment to changes in the economic environment had improved. “The speed of adjustment relative to historical times has increased. We know a lot more of what’s going on in the economy and how that can be effectively addressed and that’s the encouraging message that one sees,” he said.

“We see a pragmatic adjustment to the new realities. The speed of adjustment has been aggravated in terms of the special problems the US has been confronted such as the financial and the subprime crises. But we see that evolution is continuing.

“We are quite optimistic that the overall growth rates are going to be sustained. It’s not clear where the US is but it appears to be growing marginally. Most people are predicting 1% growth. I think it’s everybody’s interest that the growth rate increase but that will happen after the financial problems of the subprime crisis are over,” he added.

However, with the slowdown in the US thereby causing a decline in export demand from there, Adams said the decrease in export demand from the US had been offset by the growth in the European nations.

“We continue to see a very strong dynamic East Asia. We do see some shifting going on in terms of the sources of markets. Growth rate in US slowing and the input growth rate is slowing. But the better growth rates of Europe some what compensated for that,” he pointed out.