No recession! No recession! No recession!.Is what we hear from our leaders every time and all the times.Our finances are good, our banking system is very liquid, our foreign exchange reserves are healthy, our currency is stable and our stock market is a 'OK'.We certainly have no problems.
Are those the correct barometers used to predict whether a storm is coming or not.Should we only look at the present positives and negate the present and future negatives and external forces.What about falling exports, falling commodity prices,rising unemployment and declining consumer's spending.Wouldn't a prolonged period of decline and lower economic outputs spelled "RECESSION".
What's the use of all those money in the banks if they can't regenerate? What's the use of a looking good stocks exchange index when the volume traded is miserably low? What's the use of a healthy foreign exchange reserve when it is eroding in value due to weakening of the currency? Are there still people out there in government that still have their heads screwed on to their bodies.
It is certainly good to show positive thinking but it can be dangerous if one is unable to separate the fact and the fiction.While other countries like Singapore, Hong Kong,Taiwan and South Korea have warned their citizens of hard times to come, our smart leaders keep telling us not to worry, we will never be in a recession, because they are so good in managing the economy.
Our politicians are out of touch with reality, incapable of telling the truth and are convinced by their own lies.Of course, if you keep giving yourself and your cronies big fat contracts surely there is no recession for you.It is the man in the street that will feel the pinch, the most.
The comments made by various ministers and those in government on the state of the economy are at odds with the increasingly gloomy picture.The falling export trades and decline in GDP in the fourth-quarter of 2008 was an indication that all is not well with the economy. Other than saying Malaysia will not be in a recession they have not provided concrete proof and detailed explanation why they have concluded so and how we are insulated and spared from the economic crisis.Is Malaysia really that insular?
This government gives the impression of being in office but not in control of the economy.It has probably fallen for the theory of some smart economists that the Asian economies have 'decoupled' from the United States and would not be affected by any downturn in the US.This kind of generalisation is not only untrue but can have dangerous consequence to those who believe in it.Our leaders appeared to be victims of this theory.
Rating Agency Malaysia (RAM) Chief Economist Dr Yeah Kim Ling says that domestic demand could help offset the decrease in exports.This is the kind of economists that never do their home work and would certainly make the government very happy with their paintings of rosy picture.It also tells a lot about our very own credit rating agencies and so-called experts, can only open their mouth after other foreign credit rating agencies revised their figures.
What would Malaysian consumers do with billion dollars worth of electronics items like semi-conductors, computer chips and other high-technology products, they certainly can't eat them.
With recession in the US, the first industry to be hit would be the electronic industry which export substantially to the US markets. Most are owned by American-based companies that set up manufacturing facilities here.They would certainly cut down production and in some cases shut down completely if the economic crisis in the US is severe and dragged on longer than expected.
In 2006 Malaysia exported MR170.80 billion to the US out of a total export of RM589 billion.Majority were electronic items.In fact the export figure should be more if those going through Singapore for re-export to the US were taken into consideration.What domestic demand that Dr Yeah can think of that can fulfill the shortfalls in exports?
How could an economy like Malaysia with the US as its largest trading partner in export trades can be 'decoupled' from the effect of a recession in the US? With less economic activities in the US the demands for goods would decline resulting in drastic drop in our exports which would trigger a decline in GDP growth, higher unemployment and reduced consumer's spending. The prices of other commodities like palm oil,rubber and crude oil had spiralled downward with huge reduction in prices.The price of crude is currently around $36 per barrel and may even go below the next threshold level of $30 per barrel within the 1st and 2nd Qtr.Palm oil is currently selling around MR1500 per ton.
Just because we were not affected by the financial meltdown in the US doesn't mean we will be spared from the effect of the recession.These are separate issues altogether.
The financial meltdown in the US did not affect our banking system because there were very little transactions between Malaysian banks and US banks/financial institutions. Malaysian banks did not buy substantial amount of financial papers from US banks and investment houses.
The economic recession is a different ball game.As long as we have substantial exports to the US, if they sneezed, we sure to catch the flu.
I have in my article 'Recession Scenarios For Malaysia' predicted real GDP growth rate ranging from 2% down to negative territory, while the government gave an over-ambitious rate of 3.5% and the EIU (Economist Intelligence Unit) gave 3.1%, the same as Citigroup Global Market.
Of late EIU has revised its figure down to 1.5% and Citigroup down to 0.5%.
The Malaysian government haven't come up with any revision yet and probably wouldn't because they have drowned in their own intelligence.