Gloomy outlook for Malaysian economy

Today I was chatting with someone who owns a few stationery shops in Penang and I was told that “business is down” because prices have gone up. Later in the evening I chatted with the cashier at a petrol station and he told me that sales volume was down.

So it doesn’t take a genius to figure out that we are in for some gloomy times ahead especially with a global economic slowdown expected in the second half of the year.

I culled the following from various analyst reports on Malaysia:

• Global economic slowdown 2H 2008
• Slowdown in Malaysian exports to US and UK (esp electronics)‏
• Trade surplus will narrow
• High commodity prices support palm oil, oil exports
• Fiscal deficit could soar to 5% of GDP in 2008-2009
• Possible fiscal pump-priming
• RM1.5 billion to subsidise rice farmers
• More imports of rice from Thailand
• Delay in large infrastructure projects

Inflationary impact:

• Consumer prices to rise
• Much higher inflation (based on CPI): 4-5% (peak of 6%) in 2008; and 6.9-7.5% in 2009
• Reduction in consumption
• Possible wage-price spiral
• Possible interest rate hikes from July (only if wage-price spiral)
• Downside risk to growth

And this is my assessment of the impact on ordinary Malaysians:

• Higher petrol prices
• Higher transport charges
• Cash rebates – not enough to cover higher petrol
• Higher food prices
• Erosion of purchasing power
• Erosion in savings
  • Interest only 3.3% but inflation 4-5%
• Higher electricity tariffs
• Cutback on travelling – local hotels affected
• Higher food prices – affects poor more
• Cutback in consumer spending
• More expensive to eat out – hawkers less business
• Fewer cars on the road
• Higher sales of fuel-efficient cars
• Higher motorbike sales
• Frustration with poor public transport
• More credit card defaulters

My assessment of the impact on the poor or low-income self-employed:

• 24% earn less than RM1,500/month
• No minimum wage
• No cash rebates for those without cars
• Income slashed due to oil price rise e.g. fisherfolk
• Higher food prices –> Cutback on food? How to feed family, children in school?
• Cutback on health care?
• Turn to loan sharks, pawn shops – greater debt
• Higher cost of commuting to work

My assessment of the possible socio-economic impact:

• Higher crime rate?
• More take up two jobs
• Productivity drops
• Family life suffers
• Stress, depression, mental illness, suicides
• Public transport congestion

Care to add anything else? Or do you disagree? Any other observations?