Why can't we have people with a better grasp on economic realities in this country??? Yours truly, and a few others have been harping that the "official statements and official response" to how Malaysia will be affected by the current global financial turmoil, have been overly optimistic. We understand the need to promote "positive expectations" as consumer expectations forms an essential part in spurring demand. However, when we keep hearing we will still get 3.5% growth, or that we are mildly affected - it shows that many people DO NOT even understand or fathom the make up of our economy. How can a 25m open economy, with weak domestic demand, with no discernible "high value add industries" (patented technology), commodity driven to some extent ... say we will manage to survive well???
Datuk said...Obviously, an open economy like the Singapore and HK will be very much affected when the economy activities that were support by the external demand from USA and Western Europe began to disappear with the current global slump. The negative domino effects has fast spreading across to other export orientated nation in Asian continental. That's understandable and well acknowledged by the local authorities in the said area. The masses mentalities have been position into "actionable mode" and major initiatives have been triggered by its people, corporate leaders and decision makers to reduce the negative impacts to the minimum level in the wake of the current economy depression. However, i'm sad to say that in Malaysia the decision makers and economy think tank were too defensive in its approach and too political motivated in their attempt to picture a less gloomy prospect in the current economy meltdown! My goodness.....we still have economists dare to picture the prospect of 3.5% growth for next year and even worst....there is a 5% potential growth in 2009forecasted by the Asian strategic studies highlighted in one of the forum yesterday. What the hell of these people are doing and contributing for our beloved country????? The cynic is....the same day the oct key figures released by the authority revealed the complete contradicting picture! We are in the stage of heading to the negative growth in 2009 unless miracle happen.....and nearly 100%negative growth in 2010 as the shrinking in key exports (electronic, textile, palm oil and petrol, sufficient to name few..) are still at the beginning stage (oct 08).
Now the October figures are out, let's see what the people say. For September 2008 we exported RM62.3bn, October was just RM54.8bn. Thats a huge drop even if you take in the currency effects. Imports for September was RM47.5bn and thankfully we also imported less in October RM43.8bn. One can see that the export contraction has been way way too sharp, blowing out the blue-eyed optimists predictions. For comparison, Singapore's GDP growth contracted -6.8% q/q in Q3-08 (-0.6% y/y) from -5.3% in Q2-08. Industrial production in Singapore continued to fall in Q2 and Q3 by -4.9% and -11.5% led by pharmaceuticals sector and electronics; exports fell 5.7% in Sep (-13.9% in Aug) led by electronics (-10.7%), pharma (-28.7%), semiconductors grew by mere 0.1%, non-electronics fell -1.9%; exports to EU fell -23.6% and to U.S. fell -24.5%; net export (260% of GDP) contribution to Q2 GDP was -1.9% ... ball in Malaysia's court.
I don't want to be right just for the sake of being correct. Its the economy we are talking about, Datuk & I would rather be wrong and that the local economy comes through unscathed. But when you see mis-readings by certain people, naturally the measures taken to counter will also be muted and insufficient. That's why RM7bn is not enough.
I would like to see a more sobering commentary and leadership from the top politicians and top financial people in government institutions such as Bank Negara, MIER and even RAM and the like. I am not asking for them to give pessimistic views, I am asking them for clarity and realistic views. Do not try and instill a false sense of confidence in the people. I know that the rule book would call for a need to keep an optimistic view so that domestic consumption stays strong, but I also believe that a realistic view would help restore confidence that the people would know the government is handling the issue properly, and more importantly has a good handle on the issues we are facing. Time for sobering leadership.
Things are crumbling in the US and much of Europe. Many nations are already in a recession statistically, even some Asian countries. Malaysia is not in that boat (yet), but we also need to know why we are not there (yet). Is that inevitable? Can we dodge the bullet? Or are we deluding ourselves?
This is not 1997, it is not a financial crisis in our own backyard, hence we should not and will not feel the effects firsthand. For my life I cannot understand how those people out there can say Malaysia will not be affected or will be only marginally affected by this crisis. We will be affected because:
a) We do not have a big enough or strong enough domestic economy. If we had a population of maybe 80m-100m and domestic consumption makes up 65%-75% of our economy, maybe we can ride it out, but we are not.
b) If the turmoil is a short one, e.g. if the US and Europe will come out of this with positive growth by 2Q or 3Q 2009, then we can safely say we might only be marginally affected, but that is not the case here.
c) Our major trading partners are the US, China and Singapore. Of that, maybe China can still chug along and save us, but we are not supplying the right products in their enlarged fiscal stimulus (rail and infrastructure). We are rerouting a lot of exports normally to the US to China as partially finished products to be assembled or finished in China for exports. Well, some 60%-70% of China exports are really MNCs funded manufacturing / outsourcing concerns operating out of China - I don't think they will be unaffected.
Oil and CPO prices have crashed, and both help to boost our coffers. CPO prices affects CPO companies rather than the bulk of the population, hence we do not see great wealth effects when CPO is at RM3,000 and we will also not feel it that much if it goes to RM1,200. Oil would affect government coffers and the ability to fund our budget deficit. Some would scream that we are at a highish 4.8% deficit, but I am actually comfortable with that.
RM7bn stimulus is OK but will not be sufficient. I hope the government will add to it with another RM5bn at least, this time do it with a 2 percentage points cut in income tax. I know that will hurt government receipts but its a time to go further into deficit spending as the alternative is not nice. The other recommended measure is for the government to totally pay up on all bills and claims for work done within 2 weeks of invoice receipt. Governments (including state governments should lead the way to pay all bills, we all know that many bills are left unpaid or delayed for the longest time, bickering over amounts and maybe something else to happen... the trickle down effect will be substantive.
The biggest job losses will be in Penang with the high number manufacturing firms there, and watch the trickle down contraction. Oil and CPO price collapse does not hit jobs that much as the number of employees needed to run an oil company are not critical, or rather the revenue/employee is very high. Plus even at US$50, its still profitable and many suppliers and contractors are on long term contracts anyway. As for CPO, well, we know their cost is still around RM650-750 and you still need people to tend to plantations.
For impact, just take a minute to reflect on your job, how much does your company rely on strong foreign demand, how much does your company rely on domestic demand, now look at the demand outlook from both sides 3 months out and then 6 months out. Now take two of your close friends in different jobs, do the same exercise ... maybe you will have a better idea now. Malaysia relies a lot on foreign investment and that will dry up over the next few quarters. Thankfully, Bank Negara has maintained good discipline and our reserves are at an enviable level, thus allowing the country many options to deal with this crisis better than many countries. For those who does not like a weak ringgit above 3.60 vs the USD, grow up, in times of global turmoil I'd rather have a weakened currency to maintain better competitiveness. A strong ringgit would have seen more industries collapsing outright. Plus we are in a deflationary environment, hence a weaker ringgit won't be importing inflation.
Lastly, while the stockmarket has lost substantial ground over the past 12 months, this time around the bulk of retail players have been able to sidestep the fall and is in fact quite cashed up. Nonetheless Malaysia has one of the highest percentage of GDP that is listed and stock prices have a large correlation to domestic consumption, we have yet to see the wealth effect coming through.
Do not be blinkered in that we have not yet seen the effects, by virtue of the makeup of this crisis, it will only hit us with a 3-6 month delayed effect. What am I saying, the October trade data was precisely the 3 month delayed effect hitting us. October saw the impact, and we have closed for November already.... guess what the November figures will be??? Bank Negara will have to put rates down to 2.75% swiftly.
p/s photos: JJ
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