Malaysia must prepare early for rough times ahead
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Malaysia's prime minister has pointed out that the country's economy is facing risks from global economic instability this year and next, and the national capacity to respond must be strengthened.
However, we have no idea how to strengthen that capacity as we have limited resources.
The worsening European debt crisis, the unstable US recovery and the slowdown of China’s economy have led to fears of another global recession. World Bank president Robert Zoellick warned that this summer offers an eerie echo of the “great panic” of 2008.
What’s certain is that the euro will continue to cause trouble.
First, Greeks could use their vote in this month’s general election to effectively exit the euro zone. That would cause the market to lose confidence in the euro, accelerating the flight of capital and threatening the euro-zone’s collapse.
Second, Spain is facing a financial crisis and may need joint international assistance to the tune of US$569 billion.
Third, social unrest will intensify. Unemployment in the euro zone was 11 per cent in April, with a seasonally adjusted total of 17.4 million people unemployed, up from 17.3 million. Austerity policies are aggravating the suffering and could help turn the protests into riots at any time.
Elsewhere, the world’s top two economic powers are showing worrying symptoms. Unemployment in the US rose to 8.2 per cent in May as the European debt crisis hit Uncle Sam’s recovery. Meanwhile, China’s slowdown is also obvious: its economic growth for the first quarter hit an almost three-year low.
In such an economic situation, Malaysia must prepare early, particularly by strengthening domestic demand and investment to offset the reduction in exports and foreign investment.
The country has faced a fiscal deficit for 15 consecutive years that has now increased to 54 per cent of GDP. There are now fears that the government might be unable to inject capital into the market, and its Economic Transformation Programme might also be affected.
More bad news came with the drop in oil and palm oil prices. The government has been too dependent on oil revenues: the national revenue drops significantly following a fall in oil prices.
Moreover, the central bank has tightened lending to prevent high household debts from going out of control. Reduction in loans and a shutdown of the economic growth engine would lead to a bursting of the real estate bubble.
The vicious circle would lead to a chain reaction.
Under the shadow of possible global recession, PM Najib should cut the Gordian knot and schedule a general election for July. However, there are still no signs of that, probably due to worries about the impact of the April 28 Bersih 3.0 rally, which demanded clean elections.
If the election is held in September or next year, the European debt crisis might have already detonated.
The ruling Barisan Nasional is facing the challenge of internal politics and risk of an external economic crisis; Malaysians must prepare themselves for an uncertain future.
