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Given uncertainties surrounding Brexit, a weak euro zone, stagnating
Given uncertainties surrounding Brexit, a weak euro zone, stagnating

ALMOST three decades ago, Prime Minister Tun Dr Mahathir Mohamad proclaimed his vision for the country.

Dubbed Vision 2020, it was to see Malaysia become a developed and integrated nation. Along the way, this vision was fleshed out with numbers.

To be a developed nation, Malaysia will have to pass the World Bank threshold of US$15,000 per capita income.

It was a big, hairy and audacious goal, just like the vision John F. Kennedy gave the American people.

Despite the Sputnik moments of losing out to the USSR in putting the first satellite and the first astronaut in space, Kennedy thought big enough to realise his dream in 1969 of putting an American as the first man on the moon.

When we first started out in the Vision 2020 journey, our per capita income was about US$7,000.

Now it hovers around US$12,000, far short of the World Bank target. Our growth trajectory was wrecked by two intervening financial crises of 1997 and 2008.

The World Bank believes we need another three years beyond 2020 to achieve our vision.

Meantime, we have crafted Shared Prosperity as a vision to be achieved by 2030. Its construction started this year.

We need to grow well for the shared prosperity to come to fruition. Our Finance Minister Lim Guan Eng is optimistic.

He believes the Malaysian economy will remain resilient next year with a marginal increase in our growth rate of 4.7 per cent.

With exports comprising three-quarters of our output, we are a trade-reliant nation. The recent years have been tumultuous.

The Sino-American trade war and that between South Korea and Japan have riled up prospects of an accelerated global growth.

The Sino-American trade spat especially showed little signs of abating.

Although China has relented a bit, American intransigence might intensify as it enters an election year.

That might send them both into a recession next year.

Given the continuing uncertainty, the World Bank projects the world economy to grow at 2.7 per cent.

Given uncertainties surrounding Brexit, the International Monetary Fund and the European Commission predict only a modest growth of one per cent in the euro zone.

China’s growth stagnates on account of its tariff spat with the United States. Given this dismal scenario, we can only expect our exports to grow one per cent next year.

That is not enough to keep our economy buoyant, unless, of course, we can step up our exports to our largest trading partner — China.

Perhaps we can find succour in foreign direct investments?

With global supply-chain disruptions on account of the trade war, companies are moving out of China. A total of 33 announced plans mid-year to relocate out of China.

We need to attract these relocating companies to invest in Malaysia as the global supply chain is reconfiguring rapidly.

We need to redouble our efforts at investment missions, especially to China and the US.

A huge spike in industrial activity as a result of such relocation can offer effervescence to a lacklustre economy.

True enough, approved investments this year have doubled that of last year.

But last year’s investment figures were much lower than that of 2017. Notwithstanding, we need to be equally aggressive to make these investment approvals a reality.

There is a Malay proverb: Each time a flood comes in, the shoreline changes.

A new leader will bring his vision and strategies for the economy and society.

And businesses would fathom change with a change in political leadership and make their risk-management calculations.

But the clear absence of a succession timeline prevents them from doing so.

Malaysia will become more attractive to investors if there is a clear political-leadership-succession timeline.

Added to this uncertainty are the self-harming political intrigues in the ruling coalition.

Political scrappings, if not resolved, can take the country to the brink of political instability. And this can have a debilitating impact on foreign direct investment inflows.

With the global economy careening sideways, we cannot expect it to have a positive impact on oil prices.

Concerns over climate change may keep them depressed unless the Organisation of the Petroleum Exporting Countries decides on steep output cuts.

As such, oil prices next year will only have a marginal impact on government coffers.

The government pins its hope on domestic demand, particularly household spending, to prop up the economy in the coming year.

It is a fair assumption to make given a stable labour market and low inflation.

However, household debt stands at 82 per cent of the gross domestic product.

That can put paid to this reliance on domestic demand. This is especially so as consumers pare down their spending to necessities given their losing vim over the economy.

Nielson, a research firm, finds that nearly three quarters of Malaysians think that the country is already in recession.

They can be forgiven as growth prospects remain fragile with weak private consumption and investment demand.

Third-quarter growth at 4.4 per cent was lower than that of 4.9 per cent in the second-quarter.

We should take advantage of this slowdown to upgrade our productivity to move from low-value to high-value exports.

Meantime, buckle up for a tough ride!

The writer is a professor at the Putra Business School

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