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Economic Stimulation High On The Government’s To Do List
Malaysia Perspective | 24 June 2013

By: Yang Ming Wan

The elections are finally over. On the same day Prime Minister Datuk Seri Najib Razak announced his cabinet line-up in mid-May, Bank Negara also released the economic growth data for the first quarter.

Before the dissolution of the parliament, all eyes were on the economic situation around the date of the general election, which grew by only 4.1% on the back of a significant slowdown brought on by unfavourable external factors. This is the slowest growth recorded over the three-and-a-half years since the last quarter of 2009, when the Malaysian economy was starting to recover from the financial tsunami to resume a steady growth.

Drop In Commercial Loans Exposes Economy Softening
When the election was looming, many industrial and commercial decisions were put on hold to wait out either the end-of-term of the parliament in the second quarter of this year or its dissolution before the general election. This is one of the important contributing factors to the domestic industrial and commercial activities’ helplessness in fending off the impact of the negative external economic environment.

The recent lending figures released by Bank Negara showed that commercial loans disbursement declined sharply by 27.1% in April after a slight drop of 3.3% in March. Commercial loans amount approved is still mired in a double-digit decline, even though it improved slightly from 23.1% in March to 17.5%. Similarly, the leading indicators of commercial loans have not shown any signs of returning to positive growth territory – after declining 28% in March, commercial loans amount applied for showed some improvement in April but was still trapped in negative territory by staying down 6.7%, continuing a 7-month streak of decline.

Following a significant economic slowdown in the first quarter of this year, things were still looking bleak in the first month of the second quarter, as reflected by the April commercial loans figures mentioned above.

Slowest Growth In Three-And-A-Half Years
The weak first quarter showing by the Malaysian economy bode ill for the year, as it was also the slowest growing quarter since the financial tsunami of 2009.

Malaysia’s economy in 2009 was languishing in the aftermath of the financial tsunami. In the first two quarters of that year, our economy contracted by 6.2% and 3.9% respectively, and continued to register another negative growth of 1.2% in the third quarter before returning to a positive growth rate of 4.6% in the fourth quarter. Since then, the economy had been growing steadily on the back of the Government drumming up domestic demands.

Over this three-year period, apart from the aforementioned 4.6% growth in Q4 of 2009 and the 4.3% growth in Q2 of 2011, all the other 11 quarters registered economic growth rates of more than 5%.

The first quarter this year grew at the slowest rate over these past 14 quarters. Apart from a challenging external economic environment and weak external demands, the Government and the general public’s distraction by the election caused the Government to divert its focus from pushing for growth through domestic infrastructure building to dishing out cash to the people to stimulate consumption. With a disparaging mismatch in strength between both tracks of domestic demands stimulation, coupled with an unfavourable external climate, this twin economic dampener contributed to the weakest economic growth in the past three and a half years.

Biggest Challenge: Increasing Revenue Collection
Looking ahead, with the poor showing in the first quarter and now that we are already two-thirds on the way into the second quarter, how our economy will fare eventually this year will depend very much on how the Government can quickly turn around the economy in the second half of the year. The weakened government must quickly recover from the shock of the 13th General Elections and sort out the direction that our economy should take, especially when the Government is now burdened by more than RM 500 billion in budgetary shortfall. The biggest challenge the Government faces in the near future is how to effectively increase its revenues without provoking the people’s discontent.

It is only when the Government has secured a strong financial standing that we can then aim to sustain a healthy economic growth through continuously stimulating domestic demands.

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