AS the US economy is expected to help drive the global recovery, hopes are strong for Asia to benefit from this positive development.
While we wait for a solid recovery, we yearn for the revival in economic activity, higher exports as well as a lift in consumer sentiment and confidence.
Being an export-oriented economy, Malaysia will benefit from the fast recovery of the US economy.
“This is a good sign for us a logistics operator, as it could indicate that port activities will recover rapidly, ’’ said MMC group managing director Datuk Seri Che Khalib Mohamad Noh.
Acitivites had been slow during the peak of the pandemic, with pent-up demand and increase in consumer confidence, consumer spending will also resume, said Che Khalib.
The US economy has “roared back to life, ” and could notch a 10% growth in Gross Domestic Product (GDP) in the first quarter of 2021, said CNBC, quoting the Atlanta Federal Reserve which tracks data in real time to estimate changes in GDP.
US Treasury Secretary Janet Yellen said the US$1.9 trillion (RM7.8 trillion) aid package is expected to provide the resources to “fuel a very strong economic recovery, and would allow the US to return to full employment levels” by next year.
The US economy grew at above 30% annualised, in the third quarter of 2020, and slowed to 4% in the fourth quarter.
It is possible that it may accelerate again in the first quarter of 2021 due to the massive stimulus effect.
A stronger US, China and growth in other countries is likely to benefit Malaysia’s exports, said RHB Research Institute former chief Asean economist Peck Boon Soon.
In view of this bullish outlook, will projections for lower retail spending in Malaysia change?
“Not in the immediate term. Growth in the US will lead to export growth in Malaysia, then only will this lead to higher take-home pay for Malaysians, ’’ said Retail Group Malaysia managing director Tan Hai Hsin.
Retail sales in Malaysia had plunged 16.3% in 2020 compared with 2019; it has been revised downwards to 4.1% from 4.9% for 2021 due to the re-implementation of the movement control order in January and February,
Against a gradual improvement in consumer sentiment, Mah Sing Group Bhd has achieved RM250mil in sales in the first two months of the year.
Cautiously optimistic, Mah Sing has set a higher sales target of RM1.6bil for 2021, with 91% of the products priced below RM700,000 and 51% below RM500,000.
“Mah Sing will focus on affordable landed homes in the outskirts and suburban areas as well as affordable high rises in the central business district areas, as the group believes this is where demand remains resilient, ’ said Mah Sing CEO Datuk Ho Hon Sang.
Mah Sing had achieved its sales target of RM1.1bil in property sales for 2020.
The high growth in the US economy is due to the base effect. Global recovery is positive for Malaysia in terms of increased demand for its products and commodities, said Socio Economic Research Centre executive director Lee Heng Guie.
Inflation is a concern.
During a deep economic recession, the recovery will be turbo-charged by extraordinary monetary and fiscal stimulus to resuscitate consumer and business spending.
This massive stimulus will have a double-edged sword as “too much for too long” will fuel asset bubbles and inflation.
This is especially if the central bank is behind the curve to unwind the stimulus when the recovery gets stronger and goes into the overdrive.
At this juncture, the US Fed thinks that the economy still needs fiscal support, and hence, rates will be low for some time.
In the immediate term, things are looking up as the pandemic may be a thing of the past. Over time, there will be inflationary pressure and its impact on interest rates, as well as the debate on the printing of money and the growth of asset bubbles, said Rakuten Trade head of research Kenny Yee.
Pumping money to consumers will lead to a short-term boom in consumption which may trigger a reaction in central bank language, if not in actual raising of interest rates.
While this will caution markets, the real damage will be done when corporate tax rates are raised, affecting investments in the long term, said Etiqa Insurance & Takaful chief market strategist Chris Eng.
Premature “crowing” of the bounce from the depths of despair leads us to the theory of the broken window fallacy of GDP where a recovery in the economy does not mean growth.
There are some “disturbing” facts.
About 75% of jobs added in February 2021 were mainly for waitressing and restaurant jobs, which is to be expected as restaurants reopen.
“And with the exodus of New Yorkers to outside New York, we can expect the slump in New York to be reflected in GDP numbers following the destruction in property values, ’’ said Inter-Pacific Securities former head of research Pong Teng Siew.
The sales of new homes and new construction may give an illusion of prosperity in full swing as people migrate out and buy new homes.
So, we may just have to be careful of this “roar” from the US economy and look deeper into the fundamentals.
Yap Leng Kuen is a former business editor of StarBiz. The views expressed here are the writer’s own.