Malaysia Economic Outlook: What say you...

Saleh Mohammed | .

Many years ago, I attended a motivation course. My takeaway from the course is to be positive always. If someone ask, how are you... we should not say fine or good. The response should be, GREAT.

Fast forward with many more worldly exposures and experiences, I learned about pragmatism, hypocrisy and also it is okay to cry. Crying is a normal part of growing up and crying is supposed to make us stronger and more mature through our life span.

The above preamble leads me to the current state of our economy.

Less than two months ago, our prime minister said the "A-" rating for Malaysia with stable outlook, maintained by Fitch Ratings, is a reflection of the country's strong economic fundamentals. This is despite lower growth and shrinking trade numbers.

Even suppliers of moon-cakes, due to robust sales ahead of the mid-autumn festival is confident of a continued recovery in consumer sentiment.

However, economists say it is still weak and far below the optimal level. This is proven correct. A few days later, RHB Research Institute Sdn Bhd estimated Malaysia’s real gross domestic product (GDP) for 2016 to be at 3.9% (lower than the earlier forecast of 4 - 4.5%) and sustained at a subdued pace of 4% in 2017.

A week later, the latest World Economic Forum Global Competitiveness Ranking report for 2016-2017 showed Malaysia slid down to 25th position from 18th last year. Obviously, Singapore at 2nd spot is far ahead of us. The WEF looks at data on areas as varied as the soundness of banks to the sophistication of businesses in each country. Of the “12 pillars of competitiveness”, we declined in eight with only two improvements.

More surprises came about a week ago through HSBC Global Research in its Asian Economic Quarterly. It said, the government will not be able to afford any meaningful fiscal stimulus, with revenue lagging targets and expenditure having overshot. There is a deficit at a hefty 5.6% of gross domestic product (GDP) for the first half of 2016 and significant expenditure cuts will have to be made in the second half of the year to achieve the 3.1% deficit goal. There is likelihood of similar fiscal constraints in 2017.

The current account surplus has shrunk and is way below expectation and the budget deficit is under pressure. Further drop in oil prices will expose Malaysia to twin deficits – not a good sign in the current global uncertainty. The Purchasing Manager’s Index (PMI) showed contracting manufacturing activity and further reduction in employment for this sector. As of July 2016, exports fell for a 22nd consecutive month and industrial production growth was disappointing.

One of the most worrying indicator is bank lending growth, which has decelerated sharply in recent months. And there is limited scope for rate cuts that will invite currency outflows.

Our forex reserves is the thinnest in Asia. As at 30th September, it is only 1.2 times the short-term external debt.

Our national debt as at end 2008 was RM236 billion and as at 2Q 2016, it ballooned to RM656 billion and guarantees around RM180 billion. This a RM420 billion increase in debt in just over seven years. The size of debt is not the issue here, but more to what it is spent on and the interest payments have a direct impact on the national budget.

Some people are of the view that the negativity surrounding 1Malaysia Development Bhd (1MDB), as well as the US Department of Justice’s (DoJ) kleptocracy case has already been priced into the market and investors have moved beyond that. We have to be cautious since there may be other jurisdictions coming forward on this issue.

Talking about economic fundamentals, it include such economic measures as the government’s budget deficit, monetary or fiscal policy, current account balance, unemployment, the level of domestic business confidence, the state of (and confidence in) the banking and wider financial sector and consumer confidence. There are also microeconomics fundamentals within smaller segments of the economy, such as a particular market or sector.

Generally the fundamentals means less debt, more growth, little or no inflation, more exports and less imports.

As for the rating, in 2008, at the height of the global financial crisis, rating agencies were accused of misrepresenting the risks associated with mortgage-related securities. They were found to have put profits ahead of principle. And also in 2011, who said, “Oooopppss, we made a $2 trillion mistake".

Given the above scenarios, can somebody help guide me to see whether our economic fundamentals are still strong. I may be in a position where I couldn't see the forest for the trees. Yes, I did a paper on economic analysis many many years ago but time and circumstances have changed.

I have learned through my worldly exposures and experiences, we have to be practical and it is okay to admit when some things are not that positive then to cry later.

‘Biar Kita Menangis Sekarang Daripada Menangis di Kemudian Hari’ (let us admit and take corrective actions now then to regret/cry later).

What say you....

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