The government may have to speed up the introduction of more growth-friendly policies as Malaysia could sink into its first recession in 10 years, either by end of this year or next year, economists said.
In layman terms, a country slips into a technical recession if its economy had negative growth for two consecutive quarters.
Malaysia experienced its last recession cycles in 2009, 1998 and 1985 when gross domestic product (GDP) declined by 1.5 per cent, 7.4 per cent and one per cent respectively.
Bank Islam Malaysia chief economist Dr Mohd Afzanizam Abdul Rashid said in some sense, recession could happen once in every 10 years’ time.
“We need to be mindful of the economic cycle and signals from the bond market,” Afzanizam told NSTP Business.
He said the current bond yield curve suggests that the next recession is oncoming.
Afzanizam said the government should loosen up the monetary and expand the fiscal policies to keep up the growth.
“Typically, that is how the government would react to the oncoming economic slowdown, through fiscal pump priming and monetary easing (overnight policy rate cut).
“Apart from that, reducing the Employees Provident Fund members’ contribution can also promote spending among the consumers,” he added.
On the fiscal side, Afzanizam said tax cut, for example, was the immediate policy response in order to ensure the country’s GDP would continue to grow.
Similarly, with the monetary policy, reduction in overnight policy rate and statutory reserve requirement is a means to lower down the borrowing cost and increase the amount of liquidity in the banking system so that it can promote investment activities among firms, he added.
“For households, it is paramount to ensure a healthy financial condition. Individuals can always seek advice and assistance from Credit Counselling and Debt Management Agency (AKPK) in order to maintain a healthy financial management. To prepare for a recession, one should monitor their debt level regularly,” Afzanizam said.
AllianceDBS Research believes consumer sentiments over the medium term will depend largely on the new government’s policies impacting the consumers which remain in the state of flux at this juncture.
The research firm said the government’s policies outlined in the manifesto that could boost consumer sentiment and spending, thus promoting the economic growth, include the reintroduction of fuel subsidies, gradual tolls abolishment, elimination of Felda settlers’ debt and standardisation or increase of the monthly minimum wage across the country.
Others include easing the burden of PTPTN study loans for borrowers earning less than RM4,000 per month, introducing “Skim Peduli Sihat” which provides monetary assistance for the lower income group to access healthcare services as well as reducing the excise duty for imported cars below 1600cc for first car buyers.
However, the firm said, the ongoing trade wars, strengthening US dollar and re-imposition of the sales and service tax in September, may adversely impact consumer sentiments.
MIDF Research chief economist Dr Kamaruddin Mohd Nor said various macroeconomics indicators are currently pointing towards oncoming economic slowdown.
However, the predictive power of these indicators seems to be vary, depending on the economic cycle, he added.
“The odd of recession happening in the next 12 to 18 months is getting higher by looking at the current scenarios,” he said when contacted.
Kamaruddin said these included extended business cycle, tightening monetary policy, escalating trade tension, geopolitical risk and policies uncertainty.
The current business expansion seems to have extended and it is unlikely for the cycle to go beyond 2020, he added.
“Timing wise, nobody knows for certain, but the cause(s) of the next recession are almost certainly taking traction.”
Maybank Investment Bank group chief economist Suhaimi Ilias said the risk of recession was higher now due to the environment of rising global interest rates currently which is compounded by trade war risk.