Moody's Investors Service says that the depreciation in the Malaysian ringgit is manageable for the sovereign (A3 positive), banks and rated corporates
THERE we go again – another set of impressive growth figures. Bank Negara Malaysia has announced the latest Malaysia’s economic growth with a commendable 6.2% growth in the third quarter of 2017.
The pace of economic growth for the three months up to September was faster than 5.8% registered in the second quarter of the year.
This rate of growth was the fastest rate since June 2014.
On a quarter-on-quarter seasonally adjusted basis, the Malaysian economy posted a growth of 1.8% against 1.3% in the preceding quarter, according to the Statistics Department.
Malaysia’s robust growth in the economy has been attributed to private sector spending and continued strong performance in exports.
As put by Bank Negara Governor Tan Sri Muhammad Ibrahim on Friday: "Expansion was seen across all economic sectors."
But try explaining the impressive economic growth to the average Malaysian salaried worker, struggling to pay his monthly household bills.
The stretch on spending the ringgit is especially great for those living in urban areas and Malaysia is increasingly urbanised.
The story is the same everywhere – the rising cost of living has not been accompanied by an increase in wages.
Compounding matters is the depreciation of the ringgit, reducing the purchasing power or ordinary folks. They can’t buy the same amount of food as they used to previously.
Employers are being forced to cut operating costs to match declining profits.
Job security is becoming paramount. Many are fearful of losing their jobs as companies cut costs to cope with the challenging business landscape.
And the reality is many companies are not hiring, evident from the unemployment rate of 3.4%.
The Malaysian Employers Federation (MEF) has cautioned that more people will be out of job this year due to the current economic challenges.
Apart from the challenging landscape, technology has disrupted several brick and mortar businesses, forcing them to change their way of doing business.
According to its executive director Datuk Shamsuddin Bardan , economic challenges would compel bosses to review their workers’ requirements.
While official statistics show that the economy is charting a strong growth path, the trickle-down effect is not being felt.
Why is the sentiment on the ground different from what the politicians and officials are telling us? Why is there a disconnect in the economy?
Are the figures released by the government officials more accurate and authoritative compared to the loud grumblings on the ground that are anecdotical in nature devoid of proper findings?
We hear reports of supermarkets and hypermarkets closing down. But that could that be because their business model no longer works as more Malaysians turns to online shopping, with e-commerce companies announcing huge jump in traffic?
It is the same with the malls – retail outlets are reporting lower sales and it is compounded by the fact that there is an over-supply of malls.
International restaurant chains such as Hong Kong’s dim sum outlet, Tim Ho Wan and South Korean bakery Tours Les Jours, South Korean barbeque restaurant, Bulgogi Brothers, have ceased operations.
But again, it could be their choice of offerings and their prices failed to compete effectively against the local choices.
According to the central bank, demand was anchored on private sector spending.
“On the supply side, services and manufacturing sectors remained the key drivers of growth," Muhammad had said.
Looking ahead, the governor had said that the economy this year was poised to register strong growth, likely to hit the upper end of the official target of 5.2%-5.7%.
The trickle-down effect is not being felt simply because there is uneven growth in the various sectors of the economy.
The property sector, which provides the biggest multiplier effect, continues to be in the doldrums.
The weak ringgit has had a big impact on the price of food especially processed foods and beverages that makes up 74.3% of a Malaysian household spending.
It is reported that Malaysia imported a whopping RM38bil worth of food between January and October last year.
In recent weeks, the ringgit has strengthened to about RM4.16 against the US dollar. But it is still far from the RM3.80 to the dollar and the future outlook of the currency remains uncertain.
We can’t even hold our heads high against the Thai Baht and Indonesian Rupiah – two currencies that have appreciated against the ringgit.
The headline economic numbers are showing good growth.
But Malaysians' purchasing power has dropped and our living standards have eroded. That is the bottom line. We are living in denial if we do not admit this.
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