Is Malaysia Unlikely To Go Into Recession?

 In August, Finance Minister Tengku Zafrul Aziz said Malaysia’s economic outlook could be hurt by pessimism in the global economy. Bloomberg quoted him as saying Malaysia must be prepared for a slowdown in the global economy, despite the country’s strong economic expansion following the reopening of its borders and booming exports. But Bursa Malaysia’s Chairman thinks otherwise.

Pragmatic and responsive policies as well as an economy which is well-diversified are factors that could prevent Malaysia from going into recession. In addition, Bursa’s Chairman cited that one important factor that has contributed to Malaysia’s resilience is its strong and stable financial system. Debt and Equity markets are valued at RM3.5 trillion as of the end of 2021.

Source: https://www.thesundaily.my

The former economic affairs minister, however, noted that global supply chains had been under pressure with economies returning to normal post-pandemic, exacerbated by trade tensions between US and China as well as the Ukraine-Russia conflict. These factors had caused commodity and logistic prices to surge, in turn causing high inflationary pressure which forced central banks around the world to tighten their respective monetary policies.

There are at least two problems with this thinking:

(i) Financial system only lubricates the economy or provides the “blood flow” in a body – it does not generate GDP per se. If you have done Economics 101 you may understand that growth is the summation of consumption, investment, government intervention and net foreign trade/services. Banks being well capitalised and resilient means it could weather a downturn, not generate growth. In a recession (or potential downturn) outlook is dimmed, businesses invest less and generally Government expenditure may stem negative growth.

(ii) Central banks tighten interest rates to deflate inflationary pressures not because of logistics or supply chain disruptions. The latter is a cost-push phenomenon, not a monetary one. Printing money during Covid has now come to roost. Hence the interest rate hikes.

Malaysia’s resilience is due to its diversified export commodities and the manufacturing sector – primarily E&E. But we need to improve output disruptions due to labour shortages in the manufacturing, plantations and construction sectors. That hampers growth. 

So, if we “buck the trend” it is pure Providence and not policies of a bereft Government!

Reference:

Malaysia unlikely to go into recession, says Bursa chairman, FMT Business, 14 September 2022