http://about.reuters.com/dynamic/countrypages/ malaysia/998569925nKLR179070.ASP

UPDATE 2

Post-data jury hung on whether Malaysia in recession

23 Aug 2001 12:32

By Simon Cameron-Moore

KUALA LUMPUR, Aug 23 (Reuters) - Malaysia reported marginal growth in the second quarter on Thursday, but the non-seasonally adjusted data left economists split on whether the country has joined Singapore and Taiwan in recession.

Asia's open, export-oriented economies have been hard hit by the U.S.-led world slowdown, and Malaysia's electronics sector sales suffered due to the sharp downturn in the global technology cycle.

Central Bank Negara said gross domestic product (GDP) grew 0.5 percent year-on-year in the second quarter, and 1.0 percent over the first quarter.

A Reuters poll, released earlier this week, showed analysts had expected second quarter growth to contract 0.2 percent, year-on-year. It also forecast Malaysia's growth at just 0.5 percent for 2001, compared with last year's 8.5 percent sprint.

"Looking ahead, the Malaysian economy will continue to be subject to the vagaries of the global business cycle," Bank Negara Governor Zeti Akhtar Aziz told a news conference.

She said the government's pump-priming -- it announced a near $800 million fiscal stimulus in March -- and expansionary monetary policy had helped the construction and service sectors show stronger growth.

Along with positive performances by the mining and agriculture sectors it had helped sustain GDP growth, she said.

But the data was not seasonally adjusted, leaving economists to make their own calculations whether there had been a quarter-on-quarter contraction for two consecutive quarters -- the standard definition for a recession.

"TOSS-UP"

There was no consensus, with some saying the economy had entered recession, while others said it had not even posted one quarterly contraction so far this year.

"It's a toss up," commented Nzam Idris, regional economist at IDEAglobal.com.

He reckoned Malaysia was technically in recession, as did David Cohen at Standard & Poor's MMS research house, while Credit Suisse First Boston's P.K. Basu said there was no case for saying the country had reached that point.

Prime Minister Mahathir Mohamad had no doubts about the significance of the data.

"GDP growth is still positive. We have not gone into technical recession even," Bernama news agency quoted him as saying.

But, however they add up, the numbers are fairly uninspiring, analysts said.

"It's a little better than forecasts, and could vindicate the market's vigour. But it's still little to cheer about, particularly if its down to pump-priming, petroleum and the palm oil industry," Nizam said.

The Kuala Lumpur Stock Exchange benchmark Composite Index <.KLSE> has risen 18 percent from a low of 565 points in mid-May. It jumped two percent on Thursday as traders speculated that the after-hours release of the data would beat expectations.

Zeti saw better times in the final quarter of the year.

"It is very likely that the third quarter growth will be similar to the second quarter and it will be in the fourth quarter before we see a stronger recovery," she said.

Bank Negara revised its growth for the first quarter year on year to 3.1 percent, down from its initial estimate of 3.2 percent. Zeti said the bank would revise its forecast of 5.0-6.0 percent growth for 2001 only in October.

Manufacturing certainly showed a contraction in the second quarter, notching up a negative 6.7 percent year-on-year compared with 3.7 percent growth in the first quarter and a whopping 20.9 percent in the second quarter of 2000.

While that reflected a lot of the pain in the export focussed electronics sector, Zeti pointed out Malaysia was not as vulnerable as Singapore.

"Singapore has a higher proportion of electronics exports...it accounts for about 65 percent of their exports while for us, it accounts for about 45 percent of our exports. Domestic consumption in Malaysia is also quite higher than in Singapore," she said.

(With additional reporting by Jalil Hamid and Syed Azman)