Economy to undergo true test in 2H10 — Kenanga Research

KUALA LUMPUR: The Malaysian economy will undergo a true test in the second half of the year once the global economy slows down, according to Kenanga Investment Bank Bhd (Kenanga Research).

REVISED FORECAST: Kenanga Research says it is revising Malaysia’s GDP growth forecast to moderate further to 5.5 per cent from 5.9 per cent next year.

“At best, we project that GDP (gross domestic product) growth may not exceed five per cent but has the tendency to go lower,” it said in a research note.

“Given that the probability of a weaker second half is higher, we are compelled to revise up our GDP forecast for the whole of 2010 to 6.8 per cent from 6.3 per cent.”

Kenanga Research said the strong first half could also suggest that the quarterly GDP growth had peaked and signalled the beginning of a downward cyclical trend hastened by the financial debt debacle in Europe and the growing evidence that the US economic recovery was stalling.

“This would affect external demand and eventually growth as we enter the second part of the year and beyond,” it said.

The research house also said that as more evidence on the stalling of economic recovery in advanced economies mounted, governments in the US and Europe were cutting spending and reining in stimulus measures.

“These steps are premature as long as the economy remains weak and it may prolong the slowdown,” it said.

Kenanga Research said it was revising Malaysia’s GDP growth forecast to moderate further to 5.5 per cent from 5.9 per cent next year.

“The revision is due

to the relatively stronger growth performance anticipated for this year which would provide a higher base along with the possible adverse impact of tighter fiscal stances adopted by most advanced economies,” it said. — Bernama