KUALA LUMPUR: There is a 30 per cent chance that global economy will go through a recession next year in what could be detrimental to open economies like Malaysia.
This leads to a question whether the country is totally prepared for it.
Some economists felt that with escalated trade tension at the centre of the recession case, Malaysia’s strong domestic demand might not be enough to stave off the slowdown.
As such, they expect Malaysia to come up with expansionary expenditure plan in the upcoming 2020 Budget, which could leave fiscal deficit to more than previously-aimed three per cent, to cushion the impact.
“The trade war may not resolve any time soon. There is a 30 per cent chance that global recession will happen once the global economy grows below three per cent if the trade war escalates with Trump potentially posing another round of tariff on the remaing US$300 billion of goods from China,” Affin Hwang Capital chief economist Alan Tan said.
Tan said Malaysia needed to ensure its domestic demand remain healthy, accelerate infrastructure spending and provide higher allocation for the development expenditure, to cushion the slowdown in exports.
He said the government can step up measures to support private consumption and boost investments into Malaysia with 2020 Budget.
Leaving fiscal deficit to between 3.2 per cent and 3.4 per cent was still acceptable and would not trigger rating agencies to downgrade Malaysia given the external economic environment, he added.
Putra Business School associate professor and manager of business development Dr Ahmed Razman Abdul Latiff said Malaysia would definitely have to come up with business friendly measures to cushion the impact of possible global recession next year.
He said some of these measures can be in form of incentives to reduce the indebtness of businesses to financing institutions.
The government can also promote equity partnership model to these businesses so they are better protected when the crisis happens, he added.
“This is because under the current debt model, businesses will suffer during global crisis because interest rate will rise and they still have to service their financial obligations even when they are not performing.
“Equity partnerships will protect them from rising interest rate and mandatory payment of financial obligations,” he said.
Razman said the government must also reduce dependency on imported products and services by focusing on helping spurring domestic trade activities.
Creating diversified industries and leveraging on latest technologies to increase efficiency are also some measures that government must take, he added.
Meanwhile, Tan said Malaysia’s economy was expected to grow 4.5 per cent this year with key benchmark index FTSE Bursa Malaysia KLCI ending at 1,679 points.
However, he said, the forecasts might “go wrong” if the United States aggressively cuts the rates further, Malaysia’s merger and acquisition activities heighten and government spending on infrastructure project surges.