The Global Economic Crisis 2008, 2008 And The Global Financial Crisis In 2008

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The global financial crisis happened in 2008 was different from the previous financial crisis which Malaysia experienced in 1998. The financial crisis 2008 did not start in Asian countries but was affected by weakness of United States financial industry. The world’s major economies are in the United States, European countries and Japan. These countries experienced the worst economic contraction. Malaysia did not escape from this external shocked even though it had a small open and export dependent economy. In financial crisis 2008, Malaysian economy had been affected on fourth quarter of 2008. Malaysian exports and industrial output declined. Consumer’s purchasing power was adversely affected, the investments decreased as well. The financial…show more content…
This caused a huge drop in funds flowing into Malaysia. Therefore, Malaysia suffered capital fight in the year 2008 second quarter. Malaysia was one of them which affected by portfolio investment outflows among the unfortunate countries. In the past years, foreign participation on investing in Malaysian stock market was high. The foreign participants had contributed almost one third of trading volume of the whole stock market since 2004. The portfolio capital flows was reversed due to the absence of the foreign participants. The Kuala Lumpur Composite Index (KLCI) falling from 1393 points in January 2008 to 876 points in December 2008 (Refer to Figure 2). The stock market had been affected significantly since there was strong relationship between stock prices and the changes in net portfolio equity flows in…show more content…
The “other investment” account had lower net outflow in the year. This was due to the lower net external debt repayments by both private and official sectors. The scenario of rise in capital account deficit and fall in current account surplus worsen the Malaysia’s stock of foreign reserves and balance of payments. The reversal of portfolio capital flows in effect of divestments by foreign financial institutions with beginning of global financial crisis. This also caused a decline in reserves in 2008. Malaysia’s high level of reserves had slow down during the periods of huge reversals in short term flows. Moreover, the financial crisis 2008 had impacted the foreign exchange rate. Capital flows had significant impacted on the Malaysian Ringgit since de-pegging from US dollar. Capital outflows depress the price of ringgit in the way of declining the demand in exports and portfolio capital outflows. In other perspective, depreciation of ringgit may help to improve the performance of the export in the country and limit the negative impacts from the recession. World production capacity and demand play an important role in determining exports in Asian economies due to the very weak link between the real exchanged rate and performance of export in Asian

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