The lull before the economic storm — Lim Sue Goan
AUG 16 — Bank Negara made an announcement on August 15 that the Malaysia’s economic growth for the second quarter rose by an unexpected 5.4 per cent year-on-year. However, the country will be facing more severe challenges in the next few months.
The first challenge would be climate abnormalities. In particular, droughts affected crop harvest, resulting in rising international food prices. The 2008 food crisis is expected to strike the world again. Asian countries will be directly affected, particularly food import-dependent countries like Malaysia.
The Malaysian agriculture has been dwindling. The country imported RM30 billion of food in 2011, including RM1 billion of vegetables — a 9 per cent increase compared to 2010. The Federation of Vegetable Sellers Association Malaysia pointed out that only 20 per cent of food was imported a decade ago and it has now increased to 50 per cent.
It was reported that the wheat crop failure resulted in the soar of non-subsidised flour prices. Prices of flour-made products like bread, noodles and pastries are expected to increase soon.
In addition, the price hike of feed corn and soybean has also increased the cost of livestock feed. Therefore, prices of chicken and pork are expected to increase, too.
The plight would not end so soon. According to weather forecast, the drought in US would last until October and the situation in other wheat exporting countries for the next three months is also not optimistic. If some major agricultural countries stop exporting food, food prices will then continue to soar.
Prime Minister Datuk Seri Najib Razak promised that the government’s top priority would be to address the problem of the people’s cost of living. However, soaring food prices will trigger a chain effect, offsetting the people-friendly measures earlier while affecting spending power.
After the 2008 global food crisis, the government announced a food security policy, with a plan to establish food production bases in foreign countries. Also, the agricultural industry has been identified as a National Key Economic Area (NKEA). However, we still lack a comprehensive programme to solve food supply problems.
Therefore, from now until early next year, the soaring food prices are expected to exacerbate the plight of the poor.
The second challenge is that the Europe debt crisis is expected to affect the driving force of economic growth, even if the Economic Transformation Programme (ETP) has been running in full swing.
Malaysia’s exports in June grew by 5.4 per cent year-on-year, but it was not as good as the 6.7 per cent in May. The economy of the euro zone contracted by 0.2 per cent in the second quarter of the year and it is expected to accelerate China’s economic slowdown. Therefore, Malaysia’s exports to China are expected to subsequently decline, too.
September is a crucial month for the debt crisis in Europe. The German courts will rule on the legitimacy of the new euro zone bailout fund, the anti-relief Netherlands will hold elections and the Euro Group will decide whether to issue a new round of aid to Greece.
Another nightmare threatening the world economy is the possible detonation of the US fiscal cliff. It is expected that the Republican Party and the Democratic Party would fail to reach an agreement on tax cuts before the presidential election scheduled in November. A series of tax increases next year will affect its economic recovery.
Unfortunately, the government is going to implement the minimum wage policy and extend the minimum retirement age at this difficult time, increasing the pressure of the private sector.
Even worse, the general election must be held by April next year. Economic uncertainty and political chaos make the people more impatient and impetuous.
No one knows whether tomorrow will be better, but it is certain that the economy will have to face twists and turns. — mysinchew.com
* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.