THE past six months have been a roller-coaster ride for the global economy with US growth concerns, inflation worries and the euro-zone debt crisis affecting investor confidence.
Besides these factors, the tsunami, earthquake and nuclear plant crisis in Japan have also dampened sentiment.
While the overall outlook was generally gloomier than last year, some glimmer in the flow of macroeconomic data inevitably would see investors betting that the worst is over.
Now, US Federal Reserve chairman Ben Bernanke has put things into perspective with his sombre outlook on the US economy, which grew 3.1% in the fourth quarter of last year before slowing down to 1.8% in the first quarter of 2011.
The outlook for the US economy has definitely taken a turn for the worst with gross domestic product (GDP) growth revised downwards to between 2.7% and 2.9% for this year (from between 3.1% and 3.3%), while for 2012, GDP growth has been revised to between 3.3% and 3.7% (from between 3.5% and 4.2%).
Whether this would be a temporary slowdown or one that would last much longer is still open to interpretation.
But the deceleration of US economic growth would have implications for global growth and for exports-driven economies in Asean where purchasing managers indices have been lower in recent months.
Bernanke's outlook firms up the views of economists in recent months of the uncertain conditions prevailing in the global economy, as a report by Maybank Investment Bank Bhd chief economist Suhaimi Ilias dated April 11 showed.
“The fluid nature of risks, issues and challenges facing the global economy means Malaysia's policies and measures must strike a balance between sustaining growth momentum, maintaining macroeconomic and financial stability and dealing with inflation specifically the rising prices of essentials and generally the higher cost of living,” he noted.
Suhaimi said consequently, “the vital elements include executing the Economic Transformation Programme, gradual monetary policy normalisation, fiscal consolidation and subsidy rationalisation and prudential measures within the financial system to address the asset bubble and household debt risks, thus ensuring the economy stays on track”.
Of course, most economists would likely revise their growth expectations for Malaysia's economy in the coming week, especially in the wake of more recent data showing exports have decelerated faster while the industrial production index measuring factory output has fallen.
The argument for more deep-seated reforms and a sustainable growth plan would now be stronger. A June 17 report by Morgan Stanley Asia Ltd analysts Chetan Ahya and Derrick Y Kam emphasised that while Asian policymakers were moving in the right direction, the pace of reforms needed to be accelerated.
“In some parts of Asean, particularly Thailand and Malaysia, structural reforms to boost the relatively low investment to GDP ratio are needed,” they said.
Reforms would now need to be implemented quicker, especially in the wake of the winding down of the second round of quantitative easing in the US. While this the US government's purchase of US$600bil worth of bonds have managed to avoid deflation, the verdict is still out on how the economy would perform.
Bernanke said at a media briefing following the Federal Open Market Committee meeting last Wednesday that declining home prices, high unemployment and weaknesses in the financial system might restrain the recovery in the longer term.
He added that there was uncertainty over how long the economic headwinds would persist.
Recent data have shown US manufacturing activity as well as consumer and business sentiment weakening while the unemployment rate climbed to 9.1% in May after employers added only 54,000 jobs, down from the 232,000 added in April.
“We don't have a precise read on why this slower pace of growth is persisting,” Bernanke said.
Referring to “frustratingly” slow job growth and weakness in the financial and housing industries, he said “some of these headwinds may be stronger and more persistent than we thought”.
CIMB Investment Bank Bhd head of economics Lee Heng Guie said in a June 23 report that the Fed would probably not start tightening monetary policy until the second half of 2012 because the fragile recovery was more vulnerable to shocks from home and overseas.
“We maintain our view that it will keep rates at zero percent to 0.25% until year-end and for most of the first half of 2012,” he said.
While Bernanke did not signal that a third round of quantitative easing would be needed as inflation was higher, Lee expects that the Fed would consider this option if economic activity took a turn for the worse or if deflation becomes a threat again.
Source: http://biz.thestar.com.my
Besides these factors, the tsunami, earthquake and nuclear plant crisis in Japan have also dampened sentiment.
While the overall outlook was generally gloomier than last year, some glimmer in the flow of macroeconomic data inevitably would see investors betting that the worst is over.
Now, US Federal Reserve chairman Ben Bernanke has put things into perspective with his sombre outlook on the US economy, which grew 3.1% in the fourth quarter of last year before slowing down to 1.8% in the first quarter of 2011.
The outlook for the US economy has definitely taken a turn for the worst with gross domestic product (GDP) growth revised downwards to between 2.7% and 2.9% for this year (from between 3.1% and 3.3%), while for 2012, GDP growth has been revised to between 3.3% and 3.7% (from between 3.5% and 4.2%).
Whether this would be a temporary slowdown or one that would last much longer is still open to interpretation.
But the deceleration of US economic growth would have implications for global growth and for exports-driven economies in Asean where purchasing managers indices have been lower in recent months.
Bernanke's outlook firms up the views of economists in recent months of the uncertain conditions prevailing in the global economy, as a report by Maybank Investment Bank Bhd chief economist Suhaimi Ilias dated April 11 showed.
“The fluid nature of risks, issues and challenges facing the global economy means Malaysia's policies and measures must strike a balance between sustaining growth momentum, maintaining macroeconomic and financial stability and dealing with inflation specifically the rising prices of essentials and generally the higher cost of living,” he noted.
Suhaimi said consequently, “the vital elements include executing the Economic Transformation Programme, gradual monetary policy normalisation, fiscal consolidation and subsidy rationalisation and prudential measures within the financial system to address the asset bubble and household debt risks, thus ensuring the economy stays on track”.
Of course, most economists would likely revise their growth expectations for Malaysia's economy in the coming week, especially in the wake of more recent data showing exports have decelerated faster while the industrial production index measuring factory output has fallen.
The argument for more deep-seated reforms and a sustainable growth plan would now be stronger. A June 17 report by Morgan Stanley Asia Ltd analysts Chetan Ahya and Derrick Y Kam emphasised that while Asian policymakers were moving in the right direction, the pace of reforms needed to be accelerated.
“In some parts of Asean, particularly Thailand and Malaysia, structural reforms to boost the relatively low investment to GDP ratio are needed,” they said.
Reforms would now need to be implemented quicker, especially in the wake of the winding down of the second round of quantitative easing in the US. While this the US government's purchase of US$600bil worth of bonds have managed to avoid deflation, the verdict is still out on how the economy would perform.
Bernanke said at a media briefing following the Federal Open Market Committee meeting last Wednesday that declining home prices, high unemployment and weaknesses in the financial system might restrain the recovery in the longer term.
He added that there was uncertainty over how long the economic headwinds would persist.
Recent data have shown US manufacturing activity as well as consumer and business sentiment weakening while the unemployment rate climbed to 9.1% in May after employers added only 54,000 jobs, down from the 232,000 added in April.
“We don't have a precise read on why this slower pace of growth is persisting,” Bernanke said.
Referring to “frustratingly” slow job growth and weakness in the financial and housing industries, he said “some of these headwinds may be stronger and more persistent than we thought”.
CIMB Investment Bank Bhd head of economics Lee Heng Guie said in a June 23 report that the Fed would probably not start tightening monetary policy until the second half of 2012 because the fragile recovery was more vulnerable to shocks from home and overseas.
“We maintain our view that it will keep rates at zero percent to 0.25% until year-end and for most of the first half of 2012,” he said.
While Bernanke did not signal that a third round of quantitative easing would be needed as inflation was higher, Lee expects that the Fed would consider this option if economic activity took a turn for the worse or if deflation becomes a threat again.
Source: http://biz.thestar.com.my
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