The economy: The good, the bad and the ugly


  • Business
  • Saturday, 19 Apr 2003

LATELY many friends have been asking me: “How's the economy?” 

Let me put it this way. 

Remember December last year? At that time many of us were relieved and thankful to say, “good riddance to 2002.” 

Now everyone wishes this year would be like last year. Such is the sharp turnaround in perception and confidence in a matter of a month or two. 

Last year started on a promising note. The KLSE Composite Index (CI) experienced a rally in the early part of the year. It started the year at 682 points and rose to a high of 808 in the latter part of April. 

After that it was downhill most of the way. The CI ended 2002 at 646 points. So the stock market was a big disappointment despite its early promise. 

The economy fared better. According to Bank Negara, our real gross domestic product (GDP) for 2002 rose by 4.2% compared with a mere 0.4% in 2001 and 8.1% in 2000. 

At Budget time last September, the government was in an optimistic mood, predicting that a steady global economic recovery would help Malaysia achieve GDP growth of between 6% and 6.5% in 2003. 

This proved to be too optimistic and the government had to revise the growth estimate to 4.5% when the Bank Negara annual report was presented last month (pre-SARS). 

Now, the Malaysian Institute of Economic Research (Mier) has scaled down its GDP growth forecast to 3.7% this year. Other research houses are predicting an even lower figure. 

So are the bad times coming back again? 

It's an extremely difficult call to make because of SARS (Severe Acute Respiratory Syndrome). 

Before the SARS outbreak in Asia and Malaysia, the focus was on the US-led war on Iraq and its impact on the global economy. 

The war proved to be short and swift. As it turned out, the Iraq war is unlikely to affect the world economy as severely as it was first feared. Indeed, the Iraq war will probably be registered only as a blip in the Asian economic landscape. 

But now we have SARS. Mier rightly puts it: the impact of SARS on Malaysia's economy will be greater than that of the Iraq war. 

Since the SARS outbreak has yet to be brought under control, it's difficult to quantify the damage. But going by anecdotal evidence, the cost is likely to be high, particularly for the tourism, hotel and aviation industries, and retail trade. 

If, and I must stress if, SARS can be brought under control by May/June, (which is what Malaysian economic planners hope) then I think Malaysia's economy will probably register about the same sort of growth rate as in 2002 – around 4%. 

As Datuk Mustapa Mohamed, executive director of the National Economic Action Council, pointed out earlier this week, apart from the sectors mentioned above, the rest of Malaysia's economy remains stable. 

If SARS can be brought under control by June, the hospitality industry will be able to stage a recovery in the second half, while the rest of the economy will be further enhanced by the forthcoming government economic package. 

With apologies to Franklin Delano Roosevelt (FDR), I think at the moment the greatest fear Malaysians have is fear itself. 

We are a people of pessimists and rumour mongers. We always see the worst of a situation and, to make it worse, some of us aggravate the situation by spreading rumours. Such is the case with SARS. So we end up hurting our own businesses and ourselves. That's known as self-fulfilling fears. 

I tell my friends to be realistic. Prepare for the worst, but don't expect the worst. 

NOTE: Roosevelt, in his inaugural presidential address in 1933 (during the Great Depression) said: “The only thing we have to fear is fear itself – nameless, unreasoning, unjustified terror which paralyses needed efforts to convert retreat into advance.” He went on to launch the New Deal – a massive programme of public works – which pulled the US out of recession. 

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