the impact of the lobal financial crisis

the impact of the lobal financial crisis - TWN Global...

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TWN Global Economy Series The Impact of the Global Financial Crisis: The Case of Malaysia G OH S OO K HOON AND M ICHAEL L IM M AH -H UI TWN Third World Network Financial Crisis and Asian Developing Countries 26
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The Impact of the Global Financial Crisis: The Case of Malaysia G OH S OO K HOON AND M ICHAEL L IM M AH -H UI TWN Third World Network
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The Impact of the Global Financial Crisis: The Case of Malaysia is published by Third World Network 131 Jalan Macalister 10400 Penang, Malaysia. Website: www.twnside.org.sg © Goh Soo Khoon and Michael Lim Mah-Hui 2010 Printed by Jutaprint 2 Solok Sungei Pinang 3, Sg. Pinang 11600 Penang, Malaysia. ISBN: 978-967-5412-28-8
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CONTENTS 1 INTRODUCTION 1 2 MACROECONOMIC PERFORMANCE PRIOR TO THE 2008 GLOBAL FINANCIAL CRISIS 3 Export-Dependent Economy After the Asian Financial Crisis 4 Inadequate Investments After the Asian Financial Crisis 5 Gross National Savings, Gross Capital Formation and Current Account Balance 8 Persistent Fiscal Deficits 10 3 IMPACT OF THE GLOBAL CRISIS 13 Impact on Finance Impact on Trade 21 Impact on the Real Economy 23 4 NATIONAL RESPONSE TO THE CRISIS 27 5 CONCLUSIONS AND POLICY IMPLICATIONS 31 References 37
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ACKNOWLEDGMENTS This paper was prepared as part of a Third World Network research project on financial policies in Asia directed by Yilmaz Akyüz. An earlier version was presented at the Conference on the Effects of the Global Financial Crisis on Asian Developing Countries and Policy Responses and Lessons, held in Penang, Malaysia on 18-20 August 2009 and organised by the Third World Network and Consumers Association of Penang. The authors wish to thank the following for their helpful insights and comments: Dr Chan Huan Chiang, Dr Cheong Kee Cheok, Dr Rajah Rasiah and Dr R. Thillainathan; and Ms Rosliza Musa for the graphic presentations in this paper. The usual disclaimers apply.
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1 Chapter 1 INTRODUCTION THE present financial crisis is very different from the one Malaysia experienced in 1998. In 1998, Malaysia suffered a contraction in Gross Domestic Product (GDP) growth due to the Asian financial crisis which originated from Thailand. In contrast, the present crisis did not start in Asia or Malaysia but is due to the weaknesses in the United States financial industry which escalated into a severe international financial crisis and deep slump in global trade and global recession by late 2008. The world±s major economies, in particular the US, the European countries and Japan, are experiencing the worst economic contraction since the Great Depression of the 1930s. Being a small open and export-dependent economy, Malaysia has not been spared from this external shock. The negative shock was transmitted to the Malaysian economy in the fourth quarter of 2008. Exports and industrial output deteriorated and investments declined. Consumer sentiment was also adversely affected. As a result, GDP growth in the fourth quarter of 2008 was significantly lower at 0.1% compared with an average of 5.9% in the first nine months of the year. It is fortunate that Malaysian banks have
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