THE year 2010 has definitely been a year of emerging markets, with Asia (excluding Japan) in the spotlight because of its strong growth.
What started with great expectation that the global economic recovery would take root in 2010 has not disappointed. This is despite the fact that it has not been an easy journey, with many economies still plagued with varying degree of “cardiac” risks.
Still, we can take heart that 2010 will close with recovery hopes intact for many economies and a convincing growth story for Asia. The latter is expected to carry through into the next few years.
StarBizWeek reflects on some of the major economic events, especially in Malaysia, over this one year, and perhaps, draw some lessons from them.
Bank Negara was still vigilant of the impact of external uncertainties on Malaysia's economy; hence, it maintained the country's benchmark overnight policy rate (OPR) at its historical low of 2% to encourage domestic economic activities.
Meanwhile, the Government confirmed the proposed tiered fuel-pricing scheme would be implemented on May 1 in an effort to restructure its subsidy costs. (But this did not come to pass as the plan was scrapped two months later.)
In a positive development, China said its gross domestic product (GDP) for the fourth quarter of 2009 grew at the fastest pace since 2007 at 10.7% year-on-year (y-o-y), while data showed the US economy rebounded with an impressive annualised growth of 5.7%, the fastest in six years, during the last three months of 2009.
The US economic recovery and strong China growth brought hopes that global trade would stage a solid rebound for the year.
However, the euro-zone economy remained troubled as the Greek debt crisis spread across the region. Greece then came under pressure to trim its budget.
Malaysia announced it's officially out of recession, after data showed its GDP for the fourth quarter of 2009 grew 4.5% y-o-y, compared with a contraction of 1.2% y-o-y in the preceding quarter.
Many other Asian countries also saw their economies emerging out of the deep global recession. But while the region continued to churn out encouraging GDP growth numbers, Asia's two largest economies, China and India, began to worry about overheating and rising inflation.
Thailand, on the other hand, saw its capital Bangkok turned red, as red-shirted supporters of ousted premier Thaksin Shinawatra took to the streets in an attempt to bring down the government. The political tension brought many business activities in the city to standstill and Thailand was put on rating watch by international agencies.
As for the United States, high unemployment of near 10% was the main concern despite its economy emerging from recession.
Bank Negara started interest rate normalisation process, raising the OPR to 2.25%, in a pre-emptive move to prevent the buildup of financial imbalances amid a recovering economy.
The first of the two-part New Economic Model (NEM) for Malaysia was unveiled at this point by the Government. The plan highlighted new strategies for the country to achieve a high-income status by 2020, but most economists said the plan at this stage still lacked the crucial details.
In another development, the Government said its plan to implement goods and services tax (GST) in Malaysia would be postponed indefinitely. The move prompted some quarters to accuse the Government of flip-flopping again, but the Government argued that the move was the right thing to do as the country's economy was still at a nascent stage of recovery. (In 2009, the Government said it wanted GST to be implemented by the third quarter of 2011.)
In the United States, the Federal Reserve pledged to keep interest rates near 0% for an “extended period” to support the country's economy.
Interest rate differentials between developed and emerging economies widened as developed economies continued to keep their rates at super-low levels, while many emerging economies had started raising their rates. Money in search of higher returns turned their eyes on emerging markets, whose economic prospects were also much brighter compared with that of developed economies.
Malaysia saw its ringgit strengthening, reaching a two-year high against the US dollar, after it broke through the 3.19 level.
The rise of ringgit was in tandem with the appreciation of other Asian currencies on speculation of China's yuan revaluation and as the region continued to attract significant capital inflows.
Asia's economic prospects remained attractive, especially after China's economy for the quarter to March grew at an impressive 11.9% y-o-y.
No good news for Thailand, though, as the unabated red-shirt anti-government protest in Bangkok prompted rating agencies to cut the country's creditworthiness and ascribe a negative outlook on it. Thailand's main economic activity, tourism, was also crippled as a result of the massive street protest.
In Europe, Greece's creditworthiness was condemned to junk status, while that of Portugal was put on review. An aid package worth 45 billion euros was formulated for Greece to prevent contagion in the region.
Bank Negara raised the OPR further to 2.5%, as Malaysia's GDP for the first quarter accelerated at the fastest pace in 10 years to 10.1% y-o-y.
There was a sense of pride as Malaysia was named the 10th most competitive nation out of 58 economies for 2009 by Swiss-based Institute for Management Development.
Meanwhile, Minister in the Prime Minister's Department Datuk Seri Idris Jala, who is also the CEO of Performance Management and Delivery Unit (Pemandu), invited some backlash after he made a staggering remark at the Subsidy Rationalisation Open Day that Malaysia could go bankrupt by 2019 if the government debt continued to grow at the present rate of 12% annually, and its expenditure was not controlled.
At the open day, Pemandu unveiled some recommendations to cut the Government's subsidy bill and save RM103bil over the next five years.
For our neighbour, things appeared to have gone back to normal in Bangkok after its government launched an army crackdown against red-shirt protestors.
Amid growing pressure for a faster appreciation of yuan, China said it would adjust its exchange-rate policy at its own pace.
Problems in the euro zone spread, with Spain's debt ratings being cut, causing jitters in global stock markets. Relief came after a rescue package worth US$1 trillion was formulated to resolve the Greek debt crisis that threatened to sink the euro.
Prime Minister Datuk Seri Najib Tun Razak unveiled the 10th Malaysia Plan (10MP), covering the road map for the country's economy over the next five years (2011-2015). Targets in the 10MP included a GDP growth rate of 6% annually, a 12.8% annual growth in private investments, and halving of the Government's fiscal deficit from an estimated 5.3% of GDP in 2010 to 2.8% of GDP in 2015.
Meanwhile, Indonesia and South Korea announced some capital control measures to manage hot money flow into their economies.
In the developed world, Japan played musical chair with its prime minister's post, while the United States said its economy for the first quarter expanded 2.7% y-o-y.
Yukio Hatoyama quit after serving less than a year as Japan's prime minister. He was replaced by Naoto Kan, who promised to revive Japan's ailing economy. Kan then picked Yoshihiko Noda as the finance minister, tasked with tackling the national debt, which stood at almost 200% of GDP.
Western economies intensified pressure on China to revalue its yuan, citing the country's currency policy was hurting global recovery. China responded, announcing it would abandon the yuan peg, which had been held at about 6.83 to the US dollar since July 2008, and pledged to allow more flexibility to its currency value.
Unpopular but necessary, Malaysia began its subsidy rationalisation programme. Prices of petrol and diesel were raised by five sen, LPG natural gas up 10 sen and sugar up 25 sen.
Bank Negara raised OPR again by 25 basis points to 2.75%. The central bank said the rate was still “appropriate and consistent with the current assessment of the growth and inflation prospects”.
China's economic growth for the second quarter eased to 10.3% y-o-y.
Leading indicators for the US economy also showed signs of easing. Nevertheless, policymakers said there was no need for further stimulus yet.
Meanwhile, economic confidence in the euro zone improved, as debt panic ebbed.
Ringgit hit 13-year highs against the US dollar, after Bank Negara said it would relax currency controls, and as Malaysia's economy grew at a strong 8.9% in the second quarter. Leading indicators, however, pointed to slower growth ahead for the country's economy.
Ringgit hit a fresh 13-year high against the US dollar, breaching the 3.10 level. Bank Negara maintained the ban on offshore ringgit trade and refrained from raising interest rates.
Malaysia's Economic Transformation Programme (ETP) was aired to the public, setting out key economic targets for the next 10 years. Economists said proper execution was key to the success of ETP.
China came under renewed pressure to raise yuan, as Brazil warned the world of a currency war as it observed countries deliberately keeping their currencies undervalued to gain trade competitiveness.
Najib unveiled Budget 2011, with strategies aimed at supporting the Government's effort to transform Malaysia's economy. Economists described the budget as practical and prudent, without any major surprises.
China's Premier Wen Jiabao pledged support for euro and stronger ties with the European Union, even as his own country came under continuous pressure from Western economies, especially the United States, to allow the yuan to appreciate at a faster pace.
China was unwilling to let its yuan appreciate faster for fear of losing export competitiveness the main engine of its economic growth. For the third quarter, China's economy had already slowed to a growth of 9.6%, while its consumer price index (CPI), the main gauge of inflation, for September accelerated to its fastest pace in two years at 3.6% y-o-y.
Meanwhile, the US Federal Reserve hinted at a second round of quantitative easing, or QE2, as the country's economic recovery remained disappointingly slow and unemployment remained stubbornly high. US GDP for the second quarter grew only 1.7% y-o-y.
RON97 petrol price in Malaysia was raised five sen to RM2.15 per litre, as the country continued its subsidy rationalisation plan.
Bank Negara kept the OPR unchanged at 2.75% to balance between managing inflationary pressure and supporting Malaysia's economic growth. Data showed the country's GDP growth for the third quarter had slowed to 5.3% y-o-y.
While growth potential for Asian economies remained intact, fears over the rising risk of asset bubbles and inflation in the region were intensified after the US Federal Reserve unveiled a US$600bil bond-buying programme. Debates sparked over the QE2's effectiveness in boosting the US economy and its negative impact on emerging economies.
Global markets, nevertheless, rejoiced over the QE2 launch and rallied, until North Korea turned nasty and bombarded its southern sister. At around the same time of the deadly strike in Northeast Asia, Irish fiscal position was already triggering fresh doubts over euro-zone debts.
This month also saw US President Barack Obama's Democratic Party losing control of the House of Representatives while narrowly holding onto the Senate after the country's mid-term election. Voters were apparently disgruntled over Obama's handling of the country's economy.
Malaysia intensified its subsidy rationalisation programme. RON97 petrol price went up a further 15 sen to RM2.30 per litre; RON95 petrol and diesel both were up five sen to RM1.90 per litre; LPG was up five sen to RM1.90 per kg; and sugar up 20 sen to RM2.10 per kg
Malaysia's inflation remained tame throughout the year, with the latest figures showing November CPI growing 2% y-o-y. But next year may see higher inflation on the back of continued rise of global commodity prices, and as the Government gradually reduced food and fuel subsidies.
In general, Asia's growth, while moderating, had been very encouraging throughout the year. This month, for instance, saw India reporting a GDP growth of 8.9% y-o-y for the quarter ended September, while Japan saw its economy for that quarter expanding 4.5% y-o-y.
There were some cheers for the US economy as well, as leading indicators pointed to a strengthening recovery. Retail sales, for one, had been growing, sparking hopes for a return of consumer spending, which accounted for 70% of the country's economy.
At the same time, Obama reached a tax-cut deal worth US$858bil with the Republicans. Proponents said the measure could create the badly needed jobs for the US economy, even though that could further deepen the country's already-high debts.
Global risks remained as 2010 approaches its end.
The Korean tension, for one, continued to intensify, although many did not believe it would turn into a full-blown war. Euro-zone debt worries continued, particularly after Ireland's sovereign ratings were downgraded several notches, while that of Spain and Portugal were put on review.
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