From the looks of it, the economy is still reeling from the effects of the Covid-19 pandemic, and now the topic of recession has re-surfaced – leaving one to wonder: is a recession on the horizon for Malaysia?
“I believe that this will depend on what happens in countries such as the US and China. That’s because they make up more than 20% of our trade volume combined.
“So, if these two countries go into recession or become stagnant, it will have an impact on us,” shared Liew Chung Yee, 42, chief information officer of Gowise AIOT Solution, a technology company.
He argued that although Malaysia has other large trade partners such as Singapore and Japan, these countries too will suffer the economic impact should the US or China face a recession. Once this happens, Malaysia will suffer too.
He said the sectors to be first hit by a recession were export and manufacturing.
“A lower demand for output from the manufacturing sector will then have an impact on labour and income. Subsequently, this will take a toll on consumer activities before it spills over to the service sector and other sectors,” he said, adding that the entire economy would then experience a slowdown.
Wong Chin-Yoong, 44, an economics professor with Universiti Tunku Abdul Rahman shared the same view, saying that whatever happened in the US would have a ripple effect on the rest of the world.
“In the first quarter, their gross domestic product (GDP) declined, and we will likely see the same scenario for the second quarter – which would then bring them into a technical recession,” explained Wong.
A technical recession happens when a country experiences a decline in its gross domestic product (GDP) for two consecutive quarters. However, Wong believed that it would be a mild recession based on labour market shortages and household consumption data.
But, what about Malaysia?
According to Wong, the probability of a recession in Malaysia in the next six months is very low for several reasons.
“I believe that we won’t experience the kind of inflation hitting the US or UK because of the subsidies to control prices,” he shared, adding that Malaysia’s export trend is also healthy.
He added that the labour market report for the first quarter also indicated an encouraging number of new jobs. “This is certainly not an indicator of a recession, during which employers are not willing to hire.”
Sit back and relax?
Regardless of whether there is a recession or otherwise, both Wong and Liew believed that the average Malaysian can take proactive steps to safeguard themselves financially.
“Spend wisely or expand your source of income if you need to. And if you have extra financial resources, you could consider how to diversify your investment income,” Wong said.
He added that for non-professional investors, suitable investment options included investing in mutual funds or allocating additional savings into EPF. Alternatively, given the cycle of rising interest rates, a person can also opt for fixed deposits.
Meanwhile, Liew believes that it is time for Malaysians to look into cutting down household debts.
“After all, should a recession happen, you would still need to service your debts such as a mortgage or hire purchase. If you lose your job, how are you going to do that?” he said, stressing the need to be disciplined in how one spent money.
Setting-up an emergency fund was equally important, he said, suggesting a savings of between six months to one year to cover all expenses in the event of unemployment.
Although these may seem like basic financial principles, Liew said many people were not prepared for the economic uncertainties of the Covid-19 pandemic.
“Many households did not have enough savings to survive. That’s why Malaysians need to set aside enough cash to protect themselves,” Liew said.