Global economy back on track next year

Source: VANMALA SUBRAMANIAM (The Star Online)


Expert: Rates and unemployment will, however, remain high for some time

KUALA LUMPUR: The global economy is expected to be back on track by early next year, said former World Bank economist and bond market expert Ismail Dalla.

“The world economy is in a recovery mode,” he said, adding that his outlook analysis was based primarily on the World Bank’s latest forecast for a positive growth of 2.8% in the world economy by the last quarter of 2010.

But he cautioned that “despite some signs of recovery due largely to the amount of money being pumped into the US economy, interest rates will remain low and unemployment will remain high for some time to come.”

Dalla was speaking at public lecture organized by University Putra Malaysia titled Malaysian Fixed-Income Markets in the Context of Global Bond Markets here yesterday.

Commenting on the development of the domestic bond market, Dalla, now a visiting professor at the School of Business, George Washington University in the US, noted that Malaysia had the largest corporate bond market as a percentage of gross domestic product (GDP) in the world last year, surpassing that of the US and South Korea.

He also applauded Malaysia’s efforts in developing a healthy and robust local currency bond market and the recent proposal to create a private pension fund as an alternative to the Employees Provision Fund (EPF).

“This new private pension scheme is good news. The current EPF scheme reduces disposable income, limiting an individual’s ability to invest in the bond market,” said the author of The Korean Bond Market – Post-Asian Crisis and Beyond.

The Government recently announced that Malaysia would set up a private pension fund by the middle of 2010, aimed at those who remain outside any formal pension system.

According to Dalla, prospects for emerging market debt remain excellent as the asset class had performed much better than high yielding US bonds amid the global financial crisis.

With the increased availability of risk management tools, local currency bond markets had the potential and room to grow in depth and sophistication, he said.

The challenge was for market regulators to be proactive and avoid excessive counter-productive innovation and risk-taking, Dalla said.