The global economic downturn has claimed yet another victim and this time in the entertainment sport business.Honda announced it's pulling out of the F1 race citing high costs as the reason.A big blow to F1 racing but a wise decision nonetheless.
The whole world, except Malaysia, is still struggling with one of the worst economic downturn not seen in decades.Bail-outs and financial re-structuring in the US have not shown any sign of lifting the economic gloom.
Singapore, one of the more successful economies in the world projected serious decline of its economic growth in 2009.A projected growth rate of as low as 1.5% with high possibility of going into negative territory. The global downturn in demand will pull down its export earnings and hence decline in its GDP (Gross Domestic Product)
Malaysia, on the other hand has been sending out euphonious messages to its citizens not to worry about the impending economics gloom.The leaders say they have everything under control without spelling out the measures taken or to be taken in the event of a precipitous decline in the economy.The first-half of 2009 would be crucial for Malaysia if the export market continue to shrink and prices of its primary products and manufactured goods declined drastically.
I anticipate export receipts to decline at least by 20% in the 1st-quarter of 2009 as demands for electronic products,palm oil,wood-based products and crude oil declined due to poor demand in the importing countries.Falling prices would further contribute to lowering of the GDP.
Palm oil, one of the major export earner has seen price plummeted from a high of RM4500 to RM1500 currently.If price stays static or drop further in the next three months there would be massive unemployment as plantations retrench workers to keep their losses low and manageable.
|Year||GDP - real growth rate (%)|
With massive lay-offs there would be social problems such as rise in crime rate when those unemployed lost their source of income especially foreign workers who decided not to go back to their home countries and stayed on illegally. Likewise, Singapore would be retrenching many of its workers.
Almost 300,000 Malaysians are employed in various industries on the island nation and most of those retrenched would have to return to Malaysia adding to an already grim outlook.
Unless the government can boost consumer's spending there would be substantial decline in the CPI (Consumer Price Index) as the population tighten its belt to keep expenses to a minimum.Sale of consumer's items from automobile to daily necessities would decline to a worrying level.
Presently, there is notable forced sale and marginal decline in the prices of medium and lower scale properties in cities like Kuala Lumpur and Johor Baru.If the economic crisis deepen the next few months and continues into the middle of 2009 the prices of properties for all sectors would take a tumble.Upscale properties would fall between 20 t0 40% mainly in big urban areas.
The Japanese government has just announced that they underestimated the depth of the recession, it was worse than what they thought it would be.
It is,therefore, not in the interest of this nation and the Malaysian people for the government to continue living in a state of denial.We have a serious problem and we should deal with it openly.
We are just entering the recession and it's going to get worse before it gets better and below are the likely scenarios of the recession:
*Decline in GDP growth for the whole of 2009 ...... down to 2% or negative.
*Decline in CPI.A 10% decline is not unthinkable.
*Massive unemployment mostly in middle and lower income group.
*Crash of property prices in urban areas with KL taking the biggest slice of the cake.
*Increase in NPL (Non-Performing Loan) with banks and other financial institutions.
*Increase in the number of bankruptcies.
*Increase in crime rate.
*Increase in the government's budget deficit due to reduction in government revenues.
Those are possible scenarios that could happen and the degree of its seriousness is dependent on the government fundamental rescue package and programme to boost public confidence and spending.Emphasis should be given to vital industries that generate the highest economic outputs.Spending money to prop up stocks market and the currency may not work to our benefits.More often than not fighting against market forces does not bring benefical results but more losses.
The members of OPEC are learning that bitter lesson right now.In spite of massive production cuts taken to stabilise price of crude, it continues to fall.
It's time the government swallow the bitter pills and be honest to its citizens.