Gloomy outlook for Malaysian economy

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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?

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gogrishruthi

Imagine India with 1 billion people,they can manage,why cant Malaysia with 25 million the population of Mumbai,cannot pull up its sleeves?The reason is too much control by the government in Malaysia trying to fix strictures on human nature itself

norman

Buy rope just in case everything else fails.

dirac

Dear Anil, And you know what out PM would say? Malaysia is still better off than Nigeria, Mauritania, and the rest of the CLUB of DOOM gang. Does it matter to the minorities living in this country anymore? The Chinese and Indians are too small a size to matter politically. As time goes by, the number of the minorities is going to shrink further. So it really does not matter anymore. Hand back the keys to the lords of the land and let them carry on with their ‘Ketuanan Melayu’ style of politics and assure tham that they will never… Read more »

Keith Rozario

Such gloom and doom, c’mon man. Malaysian are a whole lot more resilient than that. We’ve had Hindraf members stand in front of water cannons, we’ve had an entire country fearlessly vote in the polls. We’re a whole lot stronger than most people give us credit for. You think the average Malaysian would turn to crime? Can’t we come up with better ways of earning money ? I agree that the government isn’t doing enough and that the poor are suffering, but I have to disagree with such a gloomy assessment. I believe in Malaysia, and I believe in Malaysians.… Read more »

Andrew

The government is in the process of cajoling our banks to extend the period of repayment for housing loans. The example given by the Second Finance minister went something like this: Say the period of repayment is ten years at RM700 a month, they could extend the repayment period to twenty years and reduce the monthly instalment to RM500. I also heard that Pos Malaysia will be paid a commission for the petrol rebate disbursements and guess whose hands will be in the till? As Raj Raman might put it, ask Kit Siang. This is way better than job creation.… Read more »

esgreat

Sell our US treasuries. I foresee a global sell-off some day in the future. So sell it before the USD collapses. What’s the use of keeping our national reserves in a falling currency that is paying negative interest rates (adjusted for inflation)? What’s the purpose of having that RM400 billion reserve and not using it? The US is running very bad deficits. With huge obligations, it’s impossible to pay back their debts. In fact, by inflating their currency the whole world is footing the bill through ‘inflation tax’. US M3 money supply growth quoted by independent trackers have grown ~18%… Read more »

Ijjaz

It’s time the BN gomen hire some reputable bomohs. Nation could be saved from evil economist and statisticians.

Andrew

Good suggestion, Valerie. Adopt a hardcore poor family. In one of the rare instances when the Star lives up to its people’s paper slogan, I came across some heart breaking accounts of families having to survive on unfathomably minute incomes.

Without all the hype and fanfare, perhaps Anil would be kind enough to start something, like say placing donation boxes in the shops of owners he knows, the difference being we have his word it is directly going to the hardcore poor.

Boleh kah?

The Yarning

The government putting on hold 2 maga projects in Penang is good if those money can be channelled to better use, to be injected into the development of better public transport system and facility, for example. It is so convenient and easy to blame the current PM, but is it all his fault that he’s being left with legacies that require millions in maintenance each year? That he’s staying away from this filthy mudslinging I think is very good, what is he to do if not issue warning? lock everyone up? that’s what a certain predecessor would have done. And… Read more »

Ganesh

All other countries are forwarning its population of recession. But here, people advice all going well. They say stock market doing well, exports doing well, GDP doing well…..

At least in other countries, people are preparing for a recession. Here, we are spending happily. Why?

Btw, where is Petronas results?

PBS

well as a young malaysian like me which i recently got married life just seems to get tougher well for me and my wife which we will hold back our plan to have baby because we don’t see future in this country now and also lack of security which i think the government could do better in this area it is hard to accept the fact that the government is screwing up this beloved country of mine by implicating stupid policies which is not helping the economy and attracting more investor to come in to this country. Which one day… Read more »

matt

After looking at your analysis wonder what this country has come to.It is said absolute power corrupts, what more to say about the current govt.

Mr. Mugam

Hello all,

I agree with what citizenken said. No matter what happens in the country, Malaysians still have to adapt to the situation environment in order to survive.

Sometimes a country will growth high, sometimes will eventually fall tumble. It like a life cycle. It is all to make people and citizens to learn from mistakes by their deeds in the past.

Thus, by the next time we want to vote a candidate or the party for the administrate the country, choose wisely. Dont choose just becuase you despise an individual in the party.

Fadiah Nadwa Fikri

it all boils down to one thing,corruption. it doesn’t take a genius to figure out what goes wrong when a considerable amount of crucial information is kept secret and when eye popping revelation on corruption would eventually drowned in silence.if we try our utmost best to combat corruption and the government of the day is transparent enough to be with the people in these hard times, i believe that the rakyat wont be complaining. the issue is much bigger than having to adapt to lesser luxuries (which i believe that is hardy the case).

Steven Mok

With currect economy & political uncertainty, the tough will get worst. I can forsee the below might happen:-  If Oil Price hit USD200/B, then our petrol price will be adjusted to RM5/L.  GDP slow down to below 5%  KLCI drop below 999 (by year-end 2008)  If Ringgit (RM) get weaker, foreign investors will pull out from Malaysia market  Thus Malaysia Equity & Capital markets will be badly affected  Actual Inflation rate > 30%, might hit 50% in near future  Once inflation rate higher that GDP rate, Deflation happen. that’s means negative grow rate… Read more »

new future

This is the payback that Umno pays for our ‘treachery’ in making them lose 5 states and no 2/3 majority in Parliament. It’s a signal that if we do not vote favourably the next time around things will get worse! It is time to end Umno/BN rule once for all. They will only go from bad to worse. It all started by TDM iron-fisted 22 years rule. Now the new leaders are honing and perfecting his ‘ideals’. Culminating in disaster for all non-wealthy Malaysians as the impact of this inflation/recession/depression will be too much for most to bear! – breaking… Read more »

J Choo

The best business is still the “undertaker” business!

Juan Taman

Malaysia is not the only country affected.Everyone in the world is adjusting to the economic slow down.
Maybe this is good for Malaysia.Spend the country resources wisely.Discard all the “white elephant” projects,supply monopoly and eradicate corruption.
It is a pity that both BN and the Opposition are too engrossed in politicking lately.Rakyat are emotionally drawn into their battles and foreign investors are standing and watching, holding back investment.
Hope that Pak Lah will lead wisely.Leave Anwar and Najib fight to succeed to be the next PM!Rakyat will suffer less this way.

Kenny Gan

I think something worse than recession is coming – stagflation. At least in a recession, incomes go down and prices go down. In a stagflation, incomes go down and prices go UP.

Other things which Anil did not mention:

share market down due to foreign funds moving out
fall in foreign direct investment
ringgit depreciation
unemployment increases, graduates cannot find jobs
workers laid off

Michelle

Might I add that the construction sector is also not doing well, with 200 contractors returning jobs to the govt because cost of material has gone up by 30% (ex freight), making it almost impossible for them to continue with development. Projects might be delayed, or scrapped half-way altogether, making house-buyers quite edgy.

I wrote on it here:
http://malaysianpolitics.wordpress.com/2008/07/06/when-development-comes-to-a-standstill/

Valerie

Excellent overview – gloomy no doubt but this will create more consciousness in lifestyles ~ : – no need for two handphones – no need for two TVs – no need for full astro package – cancel subscriptions (newspapers/magazines etc) use the internet – planning is crucial to avoid too many trips to shops(groceries etc) – car pool, bulk purchases(with neighbours/friends) The poor has always been poor even before any hikes! I propose, instead of giving donations to the poor as in registered homes, welfares and all GIVE IT DIRECT TO A POOR FAMILY YOU KNOW!! This is nasty to… Read more »

zozdaniel

The deteriorating economy of the country are mainly attributed to the poor management of the country’s treasury. The numerous showpiece Mega project have taken a big chunk of the annual budget. Clearly, our leaders are more keen to emulate the spending ability of the Big Brother Country of the First World, but in reality, our ability in dispensing cash have gone overboard.Totally over pricing, and utter corruption through the PIRATED, MANIPULATED dispensing of projects by way of PRIVATISATION. Just look at the real economic growth of our neighbour Thailand. majority of government spending go towards the social economic development of… Read more »

beexe

Ya It is obvious even to the petrol station cashier but our PM has gone AWOL. He should be busy formulating policies and action plans to forestall the coming storm which will only intensify. But he is too busy sleeping, or too embarassed because he doesn’t know how, or too busy avoiding the missiles coming from Blogs. He can only whimper “Please stop rumors on the blogs. Please be responsible” he pleas woefully. Other than making the badly advised call to hike petrol prices, what has he done? Has he issued new fiscal or monetary policies to mitigate that impact?… Read more »

Vj

1. One meal perday.
2. Drink only water, no coffee no milo no teh tarik no milk
3. Collect recycle things…extra income
4. Once in a while use only candle at home. Candle night dinner…hehe
5. Alternative food. Besides tapioca, lalang can be grown easily,
widely available.
6. Cycle to work. I travel 60 km every day for work and I believed
its same for all.

🙂

citizenken

well, when the going gets tough, the tough get going, i think it a blessing in disquise. the downturn will teach some lessons to the rakyats. 1.Choose wisely the next time who u vote for 2. work harder, there is no free lunch 3. find a way or make a way 4. spend wisely, buy more malaysian product 5. cut down overseas travels 6. be more efficent and effective in work. 7. proper planing while traveling , try to do multitasking 8. cultivate a good financial plan dont worry, malaysians will have to adapt with lesser luxuries,i have been to… Read more »

kong

i agree your comment.
I declare i am Malaysian First not chinese first.
We rakyat must vote wisely and make sure the government must be responsible for their failure.
If we want a better future for Malaysia, we rakyat must work together regardless of race.