Can Malaysia withstand a global downturn?
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MALAYSIA surprised the market by delivering a stronger-than-expected growth of 8.9% in the second quarter.
The post-lockdown recovery has picked up pace very well, even as the government unwinds its fiscal stimulus and certain subsidy measures.
However, going forward, concerns are mounting on whether Malaysia can continue its growth momentum, despite the risk of recession plaguing the whole world.
Riding an uneven recovery contributes to some uncertainty going forward and even Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz admitted that Malaysia’s economic outlook could be hurt by pessimism in the global economy.
“The weaker global outlook will certainly impact us,” he was reported as saying.
The overheating global economy has shown early signs of cooling down, with commodity prices coming off their multi-year highs and inflation expectations easing.
These developments are taking place as central banks rush to tighten their monetary policies.
But this comes at a great cost.,
Economic growth forecasts across advanced and developing countries have been downgraded significantly and consumer sentiment is waning in many parts of the world.
Steady momentum: People walk pass a row of flags installed in conjunction with the coming 65th Independence Day celebration in Kuala Lumpur. The post-lockdown recovery has picked up pace very well, even as the government unwinds its fiscal stimulus and certain subsidy measures. — Bernama
With corporate earnings coming under pressure, an increasing number of companies are also cutting jobs and freezing hiring.
These include major corporations like Netflix, Tesla, Twitter and Shopee.
While these changes in the global economy are worrying, they are not entirely surprising.
As central banks – especially the United States’ Federal Reserve (Fed) – raised borrowing costs aggressively, businesses are scaling back their plans and households have turned more cautious in their spending.
By the end of 2022, the Fed targets to raise its benchmark federal funds rate to a range of 3.25% to 3.5%. Rates started the year at near-zero.
In the past, most recessions in the United States since the 1920 Great Depression have followed interest rate hikes by the Fed.
Many people think that the US is already in a recession, after estimates by the Bureau of Economic Analysis show that the world’s largest economy shrank by an annualised rate of 1.6% and 0.9% in the first and second quarters of 2022, respectively.