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Author: savemalaysia   |   Latest post: Wed, 24 Apr 2019, 10:08 AM


Fast slowing economic growth prompts further action

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WITH deepening forecasts of slowing global growth, are there measures that can be taken to lift the situation?

Or as some believe, a US recession leading to a global recession will be difficult to avoid.

The issue is sustainability of growth over the long term, strategic measures to improve productivity, competitiveness and structural reform.

Debt is a huge problem in many economies, which short term measures fail to address.

Tax cuts and other short term adrenaline shots can help to temporarily stimulate economies but sustained policies are required for growth.

One can say what goes up must come down but short term boosts result in suffering once their effects dry up.

Developed countries should take the lead in supporting growth. They should not act in self interest and in the process, knock others out.

They may make short term gains, for example, by punishing other countries via tariffs but will suffer long term pains as their

economies slow after a series of temporary gains and other economies sink, leading to shrinkage of overall demand and international trade.

Besides other factors, US tariffs especially on China, are said to have chipped away business confidence, and some damage could be permanent.

Exports from China fell 20.7% year-on-year in February against a forecast drop of 4.8%; exports orders in China last month fell to the lowest in a decade.

The drop in a key index of manufacturing activity in the euro area pointed to the steepest contraction since June 2013.

German factory orders for January fell unexpectedly to 2.6% against a forecast for a gain of 0.5%.

US jobs hiring for February slumped to its slowest pace since September 2017, adding 20,000 jobs against expectations for 180,000.

As an immediate measure, easing of monetary policy will probably be conducted but that alone, may not work if the world economy continues to slide quickly.

In a quick turnabout, the European Central Bank (ECB) had reversed a decision to halt its stimulus programme, as the euro area was weakened by a recession in Italy, tariffs, trade tensions, Brexit troubles and a slowing China. Just within three months, the ECB had slashed its growth forecast for this year to 1.1%, from 1.7% earlier.

China lowered its Gross Domestic Product (GDP) target for 2019 to between 6.0% and 6.5% against last year’s goal of about 6.5%.

The Organisation for Economic Co-operation & Development had again cut its forecasts for global growth, after downgrades in November, to 3.3% in 2019 and 3.4% in 2020, representing cuts of 0.2 and 0.1 percentage points respectively.

Within this ‘downgrades galore,’ as termed by Bloomberg, the International Monetary Fund had, in January, made a second downward revision in global growth to 3.5% in 2019 and 3.6% in 2020; down 0.2 and 0.1 percentage points respectively from its earlier forecasts in October.

As an immediate measure, easing of monetary policy will probably be conducted but that alone, may not work if the world economy continues to slide quickly.

“There may be a need to start pump priming the economies; fiscal deficit positions and ratings may need to be compromised,’’ said Anthony Dass, head of AmBank Research.

The momentum of China’s economic growth backed by current stimulus measures, is closely watched; its growth rate decelerated last year to the slowest pace in three decades.

China is the world’s largest manufacturer and merchandise trader; it has contributed about 30% to global growth in recent years.

Many Asian export-oriented economies will benefit from a rebound in China’s economy; a stronger Chinese economy will diffuse anxiety over a possible devaluation of the yuan to support growth even as the US seeks a stable yuan in its trade talks.

Yuan devaluation, as happened in 2015, will hit Asian currencies and cause massive outflows, said Nor Zahidi Alias, chief economist, Malaysian Rating Corp.

With ongoing stimulus measures in China and the euro area, policy makers and central bankers must address vulnerabilities and prepare for further action, should a serious downturn occur.

“They need to harness the current growth momentum through monetary, financial and fiscal policies,’’ said Lee Heng Guie, executive director, Socio-Economic Research Centre.

Growth from unsustainable sources, as what happened in the United States, is fading. The fear is for a US recession that spreads to the whole world.

The US consumer alone is bigger than China’s economy, said Pong Teng Siew, head of research, Inter-Pacific Securities.

In 2017, US consumer spending was US$13.6 trillion, representing 70% of US GDP; China’s GDP for 2017 was US$12.2 trillion.

When unsustainable sources of growth are no longer able to provide the basis for growth, the US expansion cycle probably comes to an end.

Columnist Yap Leng Kuen hopes against spiraling negative news.

Read more at https://www.thestar.com.my/business/business-news/2019/03/11/fast-slowing-growth-prompts-further-action/ 


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