ONCE again, the doomsayers have been proven wrong. Their temerity in interpreting the state of the Malaysian economy — recession, crisis, bankrupt, failed state, among others — has not only rendered their “facts and figures” hogwash, but has turned them into “credulous fanatics”. At the end of the day, the proof is in the eating.
The 4.5 per cent gross domestic product (GDP) growth for Malaysia in the fourth quarter of last year and 4.2 per cent GDP growth for the whole of last year, surmise things — that while facing great challenges, the economy is still in an expansionary mode, albeit modestly.
Indeed, a growth rate of 4.2 per cent is not just meeting the targeted rate set by the government under the recalibrated 2016 Budget, but also a respectable rate for both global and regional standards. In today’s scenario, even the United States, under the new President Donald Trump, aspires to achieve a growth rate of four per cent. Thailand, the darling of Southeast Asian economies, has barely reached 3.5 per cent for
its growth level last year, and even Singapore is struggling not
to plunge into a technical recession. Hence, it is apparent that Malaysia’s economy is still on the right track and performing better in this era of moderate growth trend worldwide — one of the characteristics of the “new normal”.
Domestic demand is still the driving force of the economy, thanks to the structural reforms initiated by the Federal Government since 2009. Both private consumption and investment have supported the economy in the fourth quarter of last year, where the former is sustained by the continuation of wage and employment growth, while the latter is underpinned by an improvement in capital spending in the manufacturing and services sectors. Net exports have picked up too, where real exports have outpaced real imports in the final quarter of last year. This has led to the widening of the current surplus and lessens the risk of experiencing a twin deficit in the near future.
The supply side of the story appears to be promising. All sectors, except for agriculture, experienced an expansion at various levels, speed and magnitude. Although the agriculture sector is still in contraction, there is still signs of improvement going forward where it contracted at -2.4 per cent in the fourth quarter, compared with -6.1 per cent in the previous quarter (2015). With continued improvements in the commodity prices globally this year, plus the RM1.3 billion allocation for the agriculture sector under the 2017 Budget, the prospect for this sector to record growth this year seems bright.
Inflation during the fourth quarter and the full-year figures for last year remain stable. It recorded at 1.7 per cent from September to December, whereas for the whole of last year it averaged at 2.1 per cent.
Perhaps the main concern now is the ringgit’s depreciation against other major currencies, especially the US dollar. But, it is important to note that much of the factors that caused the value of the ringgit to weaken are beyond our control, such as the rise in the US dollar, the drop in oil prices and the expectation of the Federal Reserves to hike interest rates thrice this year. The ringgit has depreciated by 7.6 per cent against the US dollar in the said quarter. But, measures put forth by Bank Negara Malaysia in November has, to some extent, lessened the fall of the ringgit and stabilised the currency since it was 4.4 against the greenback.
Despite the ringgit depreciation, it is clear that the economic fundamentals remain intact, as shown by the data above. The situation was entirely different in 1998, when the ringgit also depreciated significantly. It caused the growth rate to contract at -7.4 per cent, inflation rate to spike above five per cent and jobs had disappeared alarmingly. More worryingly, Malaysian reserves during that time was merely at US$20 billion, and the non-performing loan ratio was at an all-time high of nine per cent. Essentially, the ringgit had to be pegged and capital controls was imposed, all of which had dented investors’ confidence and sentiment towards our market.
Today, pegging the ringgit and imposing capital controls are evidently not on the cards. Monetary conditions now remain healthy, with the Overnight Policy Rate remaining accommodative to support growth and support financing in the private sector activities, which now stands at three per cent level as the monetary policy committee had maintained the rate during their meeting recently. The domestic financial system appears to be rock solid. Financial institutions (banks, insures and takaful) are well-capitalised, with total capital buffers at RM172.5 billion. These data point to a steady monetary and financial management amid political and economic uncertainties in the West.
Moving forward, domestic demand, together with net exports, is expected to be the main driving force of the economy. Early last year, Bank Negara governor Datuk Muhammad Ibrahim had forecast that the economy in 2016 would get better in the second half. He was right. The growth rate for the second half of 2016 was at 4.4 per cent, compared with 4.1 per cent in the first half. Essentially, the overall growth rate of 4.2 per cent was also within the target. And, for this year, I’m confident that the four to five per cent target of GDP growth is within our reach.
The writer is Director, Asian Research Institute of Banking and Finance, Universiti Utara Malaysia