Good growth but ...

MALAYSIA’S GDP growth in the first quarter of 5% certainly surprised on the upside, which has been the norm in a number of instances when growth is projected for the economy.

The rear view indicator of the economy surely gives some momentum to what the second quarter can deliver but the prognosis for this quarter is not as rosy as what the last quarter was.

First off, the selld-own in global equities, headlined by the stock markets in the United States, will surely affect sentiment.

While the stock market is often said to be a leading indicator for the next six months, what we are witnessing in the markets as they approach bear market territory is not pretty.

Then is an absence of panic in the United States as the VIX, which is the “fear” indicator, show that there is no real frayed nerves among investors.

The sell-down appears orderly for equities but in the cryptocurrency space, well that is where the “Tales from the Crypt” stuff is really showing.

The is decimation and destruction among a number of digital coins and surely the younger generation of investors who have favoured those investments will be burnt. But in Malaysia, the decision to raise interest rates ahead of the gross domestic product was quite telling in the number of indicators released.

Firstly, the foreign exchange reserves fell by Us$1.9bil (Rm8.36bil) over a two-week period. That is a big move is such a short time and Malaysia cannot wade against the global hawkish tide that has been sparked by the surge in inflation.

Then there is the balanced of payments. The small rise even after a huge positive trade balance in the first quarter surely had confirmed the decision to raise interest rates.

Protecting the value of the currency has to be of paramount importance. Interest rates returning to the previous record low levels from the ultra record-low plateau may mean people will increasingly have to pay more for the loans they have taken out.

That is a consequence we have to live with given the explosion in household debt over the past decade. It is also time to send the message that the debt and loan-fuelled growth should not continue at the expense of returning to more sustainable growth drivers.