The coming 'Great Recession'

Comment by Wong Chun Wai

The Government has thrown a RM60bil lifeline for the country to try and prevent it from slipping into a recession. But with the world economic climate looking more gloomy than ever, there are concerns that it may not be able to halt the downward trend.

IT was already 9.30pm when Datuk Seri Najib Tun Razak walked into his home.

He had missed dinner with the editors he had invited for the briefing on the RM60bil mini-budget to stimulate the economy.

The Deputy Prime Minister appeared drained. His wife, Datin Seri Rosmah Mansor, asked if he had eaten.

Just some noodles, he said, adding that he had been with Prime Minister Datuk Seri Abdullah Ahmad Badawi since 3pm to go through the economic package.

As he began giving the editors a scenario of the doom-laden global economy, some of his listeners looked stunned. As he picked on the keropok on the table, it became obvious that some of those at the table had failed to see the dark clouds before the financial tsunami that is now approaching Malaysian shores.

There is no escaping the storm in an inter-connected globalised economy.

With many countries going bankrupt and their financial institutions collapsed, American billionaire Warren Buffet gave the most appropriate description — the American economy has fallen off a cliff. The US economy will eventually recover although a rebound could rekindle inflation worse than that experienced in the late 70s, he said.

He regarded the US economy as close to the worst-case scenario and added that the economy can’t turn around on a dime.

In short, it is already in free-fall and no one is sure when it will hit the ground but the US has certainly dragged the rest of the world down with it.

The grim fact is that the Malaysian exports would slump drastically with lower prices for key commodities, including palm oil and crude oil and a sharp drop in demand for electronic and electrical products.

Our foreign direct investments would be reduced by at least 50% while our stock market has already taken a beating, even before the financial crisis.

Manufacturing, particularly in the electronics sector, has already been badly affected and retrenchments have begun.

As the World Bank revised the global growth rate to 0.5%, Malaysia, like the rest of the world, has made changes to its own forecasts, expecting growth this year, even with the stimulus package, to be between -1% and +1%.

The fall has become faster than what has been expected. If we avoid the recession this year, it will be only narrowly.

Now, the International Monetary Fund expects that the global economy will contract this year, with its managing director Dominique Strauss-Kahn calling the crisis a “Great Recession”.

The fact is that a recession would have been inevitable had this economic package not come into place. The RM60bil is to stop the slide but even with the money, many see the situation as touch and go.

Singapore, for example, has already declared itself in a recession with possibly a 10% contraction. That’s how bad it could be.

But unlike the Singaporeans, Thais, Japanese, Chinese and South Koreans, we have taken a rather complacent attitude towards the economic crisis. It has not helped that some leaders kept giving assurances that Malaysia would be spared, which only provided false hope.

This is not about politics. Many European leaders have come clean by declaring they have no idea how to respond to the problem because this is unprecedented, with Chinese Premier Wen Jiabao declaring that this is the most difficult year of the century.

Besides calling their people to be resilient and to face up to the challenges, many European leaders have said that their stimulus package would at best buy them time and ease the difficulties.

Najib must be saluted for being honest about the prospects ahead. It will be gloom and doom.

But the bright side, whatever little there is, in Malaysia is that liquidity is still strong in Malaysia with excess funds of over RM250bil in circulation.

The savings by Malaysians have been good and the prudent practices inculcated have helped. The highly regulated practices in our banking industry, which had been frowned upon in the past, have turned out to be of help.

The immediate concern will be on how fast the funds are disbursed to the relevant sectors so jobs can be created and the spillover effects felt by Malaysians.

There is no room for wastage and leakage. There will be little patience for any act of impropriety and incompetency with the financial tsunami fast approaching.