The world economy will grow much more slowly in the next two years and the spillover definitely severe in Malaysia, which linked to the dollar. The trade will be slow down and the rate of export into US is expected to reduce sharply, leading to a cut in the rate of growth of export.
No doubt the fundamental economy of Malaysia claimed to be strong, but export especially to US still remains high, and is the engine of growth, the sluggish economy and the negative impact is likely to be felt. The KLSE seems to be over-valued and the adjustment should be followed.
In its latest economic forecast, the IMF says that world economic growth will slow to 3.7% in 2008 and 2009, 1.25% lower than growth in 2007.
The downturn will be led by the US, which the IMF believes will go into a "mild recession" this year.
The International Monetary Fund (IMF) has said that the world economy will grow much more slowly in the next two years as a result of the credit crunch.
The IMF admits that the global downturn might be still more severe than it is currently predicting, and says that there is a one in four chance of a "global recession" when world growth falls below 3%.
The world downturn will be led by problems in the US housing market, but the IMF warns that excessive house price inflation in some European countries, including Spain, Ireland and the UK, has made them more vulnerable to a slowdown.
House prices have already fallen by around 10% in the US by some measures, and the IMF says that they may be over-valued by 10% to 20% in the UK.
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