INTRODUCTION Economy analysis is assess the general state of the economy and its potential effects on its security returns in terms of earnings, cash flows, and required rate of return by investors. All these expectation are heavily impacted by the economic outlook. The objective of the analysis is to decide how to allocate investments funds among countries and within countries to stocks, bonds and cash. WORLD ECONOMIC REGIONAL ECONOMIC DOMESTIC ECONOMIC After four years of strong growth, the world economy is falling into a major downturn and is forecasted to grow at only 2.2 percent in 2009 This growth rate is at its lowest level since 2002 as concerns have intensified that the rich countries will face their deepest recession since 1930s. Any growth in the world economy in 2009 will be almost entirely driven by the emerging and developing economies, whose growth will nevertheless sharply fall to 5.1 percent from 8 percent in 2007 and 6.6 percent in 2008 World growth is for the first time driven by the emerging and developing countries in what appears to be more than ever a very large global market. WORLD ECONOMIC OUTLOOK DEVELOPED COUNTRIES DEVELOPING COUNTRIES UNITED STATES THAILAND JAPAN MALAYSIA THAILAND Political disruptions undermined the economy in 2008, hurting government expenditure and private investment. Allied to the onset of the global economic slowdown, which punished exports in the fourth quarter, they slowed economic growth to the worst outturn since 2001. Inflation accelerated in the first half, then fell back. The economy is expected to contract in 2009. Expansionary monetary and fiscal policies will help to a degree, but the Government may well need to do more to ensure that growth is sustained after its expected resumption next year. Developing East Asia is battling the forces of global recession The impact of the crisis in the advanced countries was transmitted to the economies of the region with unusual speed The aggregate global demand falling precipitously region-wide declines in exports and industrial production are triggering widespread factory closures, rising unemployment, and lower real wages, with disproportionate effects on the poor and near-poor SINGAPORE The downside of an exceptionally high degree of globalization is that the economy is hit disproportionately hard when the world trade and growth turn down. Singapore has higher dependence than other Asian economies and this gap has increased in recent years. Financial center it will suffer more than most economies from the global financial crisis and cuts in staffing at banks and brokerages. Sub-regional headquarters for multinational companies, many of which are trimming operations. Irrespective of the uncertainty surrounding the global outlook for this year, this economy is seen contracting substantially in 2009. MALAYSIA Growth in this trade-sensitive economy came to a virtual halt in the second half of 2008 as the global environment deteriorated. Inflation began to moderate in tandem with slowing growth. With external demand looking bleak, GDP is likely to contract this year, before resuming growth in 2010. The authorities have pushed through fiscal and monetary measures to support domestic demand. In view of the large current account surplus, substantial foreign reserves, and disinflation, the Government has scope to stimulate the economy without endangering macroeconomic stability. Intensification of the global economic downturn in the second half of 2008 was a major factor in slowing GDP growth sharply, as exports and industrial output declined, and the momentum in services growth eased. GDP rose by just 0.1% year on year in the fourth quarter of 2008, the lowest rate since the third quarter of 2001 and down from 7.4% in the first quarter of 2008 (Figure 3.26.1). For the year as a whole, strong growth in the first half resulted in an expansion of 4.6%, below the average 6.0% rate in the previous 5 years. Malaysia is closely integrated with the global economy: exports of good sand services are equivalent to over 100% of GDP, as are imports. The severity of the global economic downturn and shrinking world trade are expected to tip it into contraction in 2009. GDP is forecast to shrink by 0.2%, the first annual fall in output since 1998. The expected drop incommodity prices from 2008 levels will hurt export earnings and fiscal revenue, but should also damp inflation pressures, bolster the purchasing power of consumers, and enable the diversion of fiscal spending subsidies to more productive development expenditure. The projections for the economy this year assume that the authorities can implement expansionary fiscal policies in a timely manner, and that the political environment remains stable. As an upper-middle-income country, Malaysia can no longer rely on low wages and the accumulation of physical capital to sustain the robust levels of growth achieved in the past. Nor can it continue to follow that model to reach its goal of becoming a fully developed economy by 2020. Growth in the future will increasingly depend both on a move into activities that are intensive in knowledge, skills, and technology, and on an increase in total factor productivity.