Economist: Recession on the cards if US-China trade war continues

PETALING JAYA: An independent economist warns that the country is likely to fall into a recession which could last until the end of next year if the trade war between the US and China continues.

Hoo Ke Ping.

Hoo Ke Ping said Malaysia was already experiencing a “technical recession”, a situation where an economy suffers two consecutive quarters of negative economic performance.

Because of this, he added, it could easily fall into recession.

The last time Malaysia recorded a technical recession was in 2008, before economic slowdown was recorded in almost all sectors.

“This time, we are experiencing a technical recession due to negative growth,” Hoo told FMT.

Several days ago, Bank Negara lowered Malaysia’s economic growth forecast for 2018 to 5% from its earlier forecast of 5.5 to 6%, due to slower growth.

Hoo said Singapore faced a technical recession last year after experiencing negative growth for one quarter. “But for the remaining two quarters, our neighbour had good growth and it managed to avoid recession.”

Hoo said Malaysia’s economy was currently experiencing negative growth because, among other things, the construction sector had been adversely affected.

He said the cancellation of the RM4 billion Trans-Sabah Gas Pipeline and RM81 billion East Coast Rail Link (ECRL) was already having an effect.

He claimed that when the pipeline and ECRL projects were put on hold earlier, “thousands of Chinese workers who were renting apartments in Wangsa Maju went back to their country, causing the rental market to crash from RM4,000 a month to RM1,200”.

He said this meant that “thousands of Malaysian house owners” now had less money to spend as they were servicing their housing loans.

He noted that in Bukit Jalil, “thousands of apartments” were already at the tail end of construction, except for the Pavilion Shopping centre.

“This means in terms of construction, there is negative growth. Big projects like the MRT3 have been scaled down,” he added.

He said other factors that could signal a recession included the low palm oil price, with China buying less than before, and the negative foreign direct investment in the electronic sector.

Due to this, he said, if the trade war between the US and China continued, Malaysia would be in recession as it sold a lot of products to China.

“If China is hit, we are hit,” he said.

The US and China have slapped tariffs on a range of goods in a tit-for-tat approach since the first week of July, and analysts say it is not expected to end anytime soon.

Hoo said there could be higher unemployment and layoffs if Malaysia entered into a recession early next year.

However, he said, the export sector and the timber industry were doing well due to the weak ringgit.

As for the third car project mooted by Prime Minister Dr Mahathir Mohamad, Hoo said even if it succeeded, it would take at least five to 10 years before growth could be seen.

He said the country’s fiscal standing in terms of government revenue and taxes was still good.

Hoo also urged the government to stop acting like the opposition and saying that the economy was bad.

“People are not spending as much because psychologically they feel the economy is bad. Less consumption means less spending, which will lead to recession, especially as other sectors shrink,” he said.

“Stop blaming the past government. They are history.”

He said the government would have to take measures to stop the economy from slowing down and inject confidence so that investors would invest and Malaysians would start spending.