Mahathir in mood for polls - Malaysian Prime Minister Mahathir Mohamed

Business Asia, July 5, 1999 by Nelson Graves

Malaysia has all but closed the door on its deepest recession in decades and embarked on the path to economic recovery just as the government contemplates general elections.

Economists agree with the government that the recession ran its course in the first quarter when gross domestic product (GDP), announced late last month, fell by 1.3 per cent year-on-year.

Low interest rates, an undervalued currency and a brighter regional picture have provided the springboard for a second-quarter rebound in manufacturing production that is leading the economy out of its first downturn in 14 years.

"It is a virtuous circle," said Mr Neil Saker, head of economic research at SG Securities.

If the present trend continues, the government will have firm data indicating an official end to the recession by August. Many politicians expect Prime Minister Dr Mahathir Mohamed to call elections in September.

Among the faint clouds in the otherwise clear sky are sluggish domestic demand and slack private investment spending.

Sales of new commercial vehicles declined in the first quarter compared to the preceding three-month period before picking up modestly in April. Loan approvals are lacklustre.

Job vacancies rose sharply in May over April, suggesting companies have not yet buried their worries.

However, the government, which adopted an expansionary fiscal stance last year that ended years of surpluses, has moved to speed up spending to spur domestic demand.

Manufacturing, which accounts for one third of GDP, has been the engine of growth, with the electrical and electronic sectors leading the way. The manufacturing production index spurted 4 per cent in April after a modest 0.5 per cent rise in March.

Even credit growth, which for many economists has been a worry, has shown faint signs of life. All measures of money supply, M1, M2 and M3, accelerated in April year-on-year.