Tan Sri Mohd Sidek Hassan

Tan Sri Dr. Wan Abdul Aziz Wan AbdullahTHE subprime mortgage crisis in the US housing market becameapparent in mid-2007 and rapidly escalated into a global financialcrisis. While the causality of the crisis is well documented, the depth,breadth and duration of its impact is mired in uncertainty. Despitestrong economic fundamentals, Malaysia, being a small, open and globallyintegrated economy, is not spared from the effects of the global financialcrisis.The domestic economy was affected through trade and investment channels, andcontracted significantly in the first quarter of 2009. The impact of the crisis isexpected to ease in the fourth quarter with mild recovery next year.With world trade moderating significantly to about 3% by September 2008,Malaysia’s exports recorded double-digit declines in the final quarter of 2008 andthe first quarter of 2009. Export-oriented industries, particularly the electrical andelectronics, were badly hit.Consequently, manufacturing outputcontracted sharply in the fourth quarterof 2008 and the first quarter of 2009.For the first time since 1998, the servicessector registered a mild decline in the firstquarter of 2009, in line with the lacklustreperformance of trade-related activities.The economic downturn affected labourdemand, as reflected in higher retrenchmentsand lower vacancies. During the firstquarter of 2009, total retrenchments rose74%, largely in the manufacturing sector.Despite strong economicfundamentals, Malaysia,being a small, openand globally integratedeconomy, is not sparedfrom the effects of theglobal financial crisis.The crisis also affected investor sentiment.Equity markets worldwide plunged and in tandem, the Kuala Lumpur CompositeIndex (KLCI) fell to 872.55 points as at end-March 2009, from a high of 1,516.22points on Jan 11, 2008.Private consumption fell in line with lower disposable income and cautious spendingof households. Weak external and domestic demand also impacted domesticinvestment sentiment, which saw total investments declining significantly in the firstquarter of 2009. We have experience in managing crises. During the 1997/1998Asian financial crisis, Malaysia’s expansionary fiscal and accommodative monetarypolicies in resolving the economic crisis was viewed with scepticism.21