FOLLOWING recent reports that Japan and the United Kingdom have joined Germany in recession, there is an inevitable wave of worry among other export-orientated countries on their outlooks for this year.
As three of the world’s biggest economies flounder, what are the options for countries like Malaysia?
According to a member of the advisory panel to the Finance Ministry, Dr Yeah Kim Leng, Malaysia should use the current period of global uncertainty to accelerate its structural economic reforms and hasten the inflow of investments in order to cope with challenges arising from recessions faced by the major economies.
He explained that a faster rate of processing investments that have been pledged is necessary to generate more positive spillover effects to the economy.
In an interview with The Vibes, Dr Yeah agreed that the Ringgit is grossly undervalued due to the continued high interest rate threshold in the United States which the Federal Reserve sees no need to adjust for now due to the stronger than expected economic data.
The world is watching closely as reports filter through of the recessions in Japan, UK and Germany, while the US treads a fine line between a downturn and soft landings.
There is also concern over China's status owing to the real estate hangover that the country is said to suffer from.
The risk to Malaysia is certainly tied to the global economic conditions.To maintain internal resilience, the country must also boost domestic consumption to make up for possible shortfalls in exports due to recessions in the big markets.
Growth prospects
Dr Yeah remains optimistic that Bank Negara Malaysia’s (BNM) growth projection for the country of between four and five percent for 2024 is attainable.
The International Monetary Fund (IMF) has also revised upwards its global growth this year due to the US’ better than expected growth, said the economist.
IMF projects a 3.3 percent global growth. The world body stated that the conditions are primed for a soft landing although there are other concerns which remain in the background.
Among them are the continued global inflation, concerns over the efficiency of the global supply chain including for food, and the persistent conflicts in Ukraine and Israel.
Dr Yeah, a professor of economics at Sunway University Business School, stressed that the country is still on track to register growth this year. But to ensure it minimises the effects from global economic risks, there is a need to speed up economic reforms.
"We want an enduring impact from our reforms of the economy," he said in an interview.
He noted current efforts to rationalise subsidises and strengthen the fiscal position by reducing the current account deficit and overall debt. There is also a move to enhance revenue mobilisation to ensure better spending on needful sectors.
"We also want an increase in our efficient spending – meaning we can secure better returns from our public sector investments," he said.
These would translate to a better overall economic performance and bolster sentiments in the currency market so that the Ringgit can rebound in value.
Consumer confidence
Dr Yeah also sees that the higher dividend expected from the Employees Provident Fund (EPF) may spur consumer confidence to entice more spending.
"There is a need to shore up consumer confidence although there are vulnerabilities to be mindful of, such as exposure to a poor property market outlook due to China's woes," he said.
Besides the EPF’s heartening performance in the investments market, Yeah noted that the country's unemployment rate remains at 3.3 percent, which is almost seen as full employment. This is another positive trait.
On February 16, BNM had announced that growth in 2024 will be driven by resilient domestic expenditure and improvement in external demand, noting that the IMF projects a rebound in global trade growth from 0.4 per cent in 2023 to 3.3 per cent in 2024.
“Together with the tech upcycle, the stronger external demand and continued improvement in the tourism sector will provide support to Malaysia’s exports,” BNM said in a statement.
On the domestic front, household spending will be supported by continued employment and wage growth.
Investment activity will be underpinned by further progress of multi-year projects, by both the private and public sectors, as well as the implementation of catalytic initiatives under the various national master plans.
Improvement in tourist arrivals and spending are expected to continue.
“The growth outlook remains subject to downside risks stemming from weaker-than-expected external demand and larger declines in commodity production.
“Nonetheless, there are upside risks to growth emanating from greater spillover from the tech upcycle, stronger-than-expected tourism activity and faster implementation of existing and new projects,” it said.
BNM also projected headline and core inflation to remain modest in 2024. – The Vibes, February 20, 2024
