PREVENTIVE MEASURES

THE government is urged to come up with more growth-friendly policies as analysts caution the odds of Malaysia slipping into a technical recession in the next 12 to 18 months are looking higher than before.

THE government may have to speed up the introduction of more growth-friendly policies as Malaysia could sink into its first recession in 10 years by the end of this year or next year, said economists.

In layman terms, a country will slip into a technical recession if its economy has negative growth for two consecutive quarters.

Malaysia experienced recessions in 2009, 1998 and 1985 when gross domestic product (GDP) declined by 1.5, 7.4 and one per cent, respectively.

Bank Islam Malaysia chief economist Dr Mohd Afzanizam Abdul Rashid said recession could happen once every 10 years.

“We need to be mindful of the economic cycle and signals from the bond market,” he told NST Business.

He said the bond yield curve suggested that the next recession was coming.

Afzanizam said the government should loosen the monetary policy and expand fiscal policies to keep the growth.

“Typically, that is how the government should react to the economic slowdown, through pump priming and monetary easing such as an Overnight Policy Rate (OPR) cut.

“Apart from that, reducing the Employees Provident Fund members’ contribution can promote spending.”

On the fiscal side, Afzanizam said tax cut, for example, was the immediate policy response to ensure that GDP continued to grow.

Reduction in the OPR and statutory reserve requirement was a means to lower borrowing costs and increase liquidity in the banking system to promote investment activities among firms, he added.

“For households, it is paramount to ensure a healthy financial condition. Individuals can seek advice from the Credit Counselling and Debt Management Agency.

“To prepare for recession, people should monitor their debt levels regularly.”

AllianceDBS Research believes that consumer sentiment over the medium term will depend largely on government policies, which, at this juncture, remain in a state of flux.

The research firm said policies outlined in the government’s election manifesto that could boost consumer spending included the reintroduction of fuel subsidies, gradual abolition of toll, cancellation of Felda settlers’ debts and standardisation or increase of minimum wages.

Others included easing the burden of National Higher Education Fund loan borrowers earning less than RM4,000 per month, introducing “Skim Peduli Sihat” for the lower income group and reducing the excise duty for imported cars below 1,600cc for first-time car buyers.

However, AllianceDBS Research said the United States-China trade war, strengthening US dollar and implementation of the Sales and Services tax next month could adversely impact consumer sentiment.

MIDF Research chief economist Dr Kamaruddin Mohd Nor said macroeconomics indicators were pointing towards an economic slowdown.

But the predictive power of these indicators varied depending on the economic cycle, he said.

“The odds of a recession happening in the next 12 to 18 months are getting higher, looking at the current scenario.”

Kamaruddin said these included an extended business cycle, tightening of monetary policy, escalating trade tensions, geopolitical risks and policy uncertainties.

The current business expansion seemed to have been extended and it was unlikely to go beyond 2020, he added.

“Timing-wise, nobody knows for certain, but the causes of the next recession are almost certainly taking traction.”

Maybank Investment Bank group chief economist Suhaimi Ilias said the risk of a recession was higher due to rising global interest rates which was compounded by trade war risks.

To prepare for recession, people should monitor their debt levels regularly. DR MOHD AFZANIZAM ABDUL RASHID

Bank Islam Malaysia chief economist